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28 Cards in this Set

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What are corporate senior instruments?
financial obligations of a corporation that have priority over its common stock in case of bankruptcy; include debt obligations and preferred stock
What is securitization?
the phenomenon of borrower preference for issuing securities over borrowing directly from banks
What is the spread?
on top of the yield on a T-security, it is the premium that a corporation must payout for the risk associated with their debt instrument that do not exist in the T-security; increase in credit spread results in decline in the price of the issue
What are the 5 sectors of corporate debt obligations?
1. commercial paper market
2. medium-term not market
3. bank loan market
4. bond market
5. corporate bond market
What is commercial paper?
short-term unsecured promissory note in the open market; for large corporations with strong credit ratings; bridge financing- issue them until market is favorable for long-term debt; maturity is less than 270 days; most common 30-50 days or less; don't have to register with SEC if less than 270 days; held mostly by money market mutual funds and institutional investors; very little secondary trading
What are the 3 types of financial companies?
1. captive finance companies
2. bank-related finance companies
3. independent finance companies
What are captive finance companies?
subsidiaries of equipment manufacturing companies; secure financing for parent company
What is a letter of credit or LOC paper?
allow firms with poor ratings to issue commercial paper; specifies that the bank issuing the letter guarantees that the bank will pay off the paper when it comes due, if the issuer fails to do so
What is Yankee commercial paper?
commercial paper issued by foreign entities
What are the two classifications of commercial paper?
1. direct paper
2. dealer-placed paper
What is direct paper?
direct paper is sold by issuing firm directly to investors with intermediaries
What is dealer-placed paper?
requires the services of an agent to sell an issuer's paper; best efforts underwriting basis
What is Samurai commercial paper?
issuace of yen-dominated commercial paper in Japan by non-Japanese entities
What is Eurocommercial paper?
commercial paper issued and placed outside the jurisdiction of the currency of denomination; maturity can be longer than American paper; does not require as much credit backing as American paper; usually dealer placed; numerous dealers participate unlike US paper; more trading in secondary market than done with US paper
What is a medium-term note (MTN)?
corporate debt instruments that are continuously offered to investors over a period of time by an agent of the issuer; several maturity ranges; fills gap between commercial paper and long-term bonds
What are Euro medium-term notes?
those issued in Euromarket; started in 1987;
What are structured notes?
MTNs that are created when the issuer simultaneously transacts in the derivate markets
What are Eurocurrency loans?
loans made by offshore banks
What is a syndicated bank loan?
group of banks provides funds to the borrower
What are senior bank loans?
another name for syndicated bank loans; have a priority position over bondholders with respect to repayment of interest and principal
What is a floating rate?
interest rate on a syndicated bank loan floats; loan rate is based on some reference rate or reference rate plus a spread; reference rate is typically the London Interbank Offered Rate (LIBOR)
What are bullet loans?
structures in which no repayment of the principal is made until the maturity date
What are performing loans?
a loan whose borrower has fulfilled all obligations to date
What is a leveraged lease?
type of leasing arrangement whereby the lessor provides only a portion of the funds to finance the cost of the leased asset, and the balance is borrowed from a third party; 3 parties: the lessee, the lessor and the lender
What is a lessee?
potential equipment user
What is a lessor?
bank or finance company that buys the equipment and leases it to the lessee
What are tax-oriented leases?
lease in which in exchange for tax benefits, a lessor provides lower-cost financing to the lessee than the lessee could get by purchasing the equipment with borrowed funds
What are single-investor or direct leases?
lessor provides financing from its own funds and has 100% of the risk