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43 Cards in this Set
- Front
- Back
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What are the four classifications used by bond information services?
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1. utilities
2. transportations 3. industrials 4. bank and finance companies |
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What are bond indentures?
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outlines: maturity, security and its provisions for retirement; contract that details the promises of corporate bond issuers and bondholder rights
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What are bullet-maturity or bullet bonds?
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term bonds- run for a term of years, then become due and payable
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What are serial bonds?
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specified principal amounts become due on specified dates prior to maturity
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What is a mortgage bond?
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grants the bondholder a lien against the pledged assets; a lien is a legal right to sell mortgaged property to satisfy unpaid obligations to bondholders
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What are collateral trust bonds?
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a bond secured by stocks, notes, bonds, or other kinds of financial instruments
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What are equipment trust certificates?
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a form of borrowing secured by property such that title to the property is held in trust until the debt obligation is paid off
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What is a debenture bond?
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bond not secured by a specific pledge of property, but giving the bondholders the claim of general creditors on all assets of issuer not pledged specifically to secure other debt
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What is a subordinated debenture bond?
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bond in which the bondholder ranks after secured debt, after debenture bonds, and often after some general creditors in their claim on assets and earnings; therefore they cost more than the other 2
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What is a guaranteed bond?
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obligation quaranteed by another entity
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What is refunding?
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provision that denies the issuer the right to redeem bonds during some period of time (usually first 5 to 10 years) after issuance with proceeds recieved from issuing lower-cost debt obligations ranking equal or superior to the debt to be redeemed
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What is call risk or timing risk?
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risk that the issuer will call the issue at a disadvantageous time; when interest rates fall
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What is the sinking fund provision?
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indenture requires the issuer to retire a specified portion of an issue each year; reduces credit risk
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What is a convertible bond?
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a corporate bond with a call option to buy the common stock of the issuer
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What is an exchangeable bond?
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grants bondholder the right to exchange the bonds for the common stock of a firm other than the issuer of the bond
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What is a warrant?
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a warrant grants the holder the right to purchase a designated security at a specified price from the issuer of the bond; simply it is a call option; difference between warrants and convertive/exchangeable bonds is that a warrant does not have to turn the bond in to the issuer, can use cash
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What is a putable bond?
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grants the bondholder the right to sell the issue back to the issuer at par value on designated dates; good if interest rates rise
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What are floating-rate securities?
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coupon interest is reset periodically to follow changes in the level of some predetermined benchmark rate; save costs of continuously rolling over short-term securities
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What are investment-grade bonds?
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bonds carrying a rating in the top 4 categories- prime, high quality, upper medium grade, medium grade; usually deemed by either Moody's, Standard & Poor's Corporation, or Fitch
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What are high-yield bonds or junk bonds?
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bonds that carry a rating not in the top 4 classifications; noninvestment grade bonds
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What is a leveraged buyout (LBO)?
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the acquisition of a company by another that uses a substantial amount of debt to finance the acquisition; bondholders don't want this because credit ratings will fall
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What are fallen angels?
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a bond rated investment grade at the time of issuance but subsequently downgraded to noninvestment grade
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What are the 3 types of deferred coupon structues?
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deferred-interest bonds, step-up bonds, payment-in-kind bonds; used to help firms with cash flow burdens like in leveraged buyout situations
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What are deferred interest bonds?
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bonds sell at a deep discount and do not pay interest for an initial period, typically 3 to 7 years
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What are step-up bonds?
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do pay coupon interest, but the coupon rate is low for an initial period and then increases to a higher coupon rate
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What are payment-in-kind (PIK) bonds?
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gives the issuer the option to pay cash at a coupon payment date or give the bondholder a similar bond
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What is the Nasdaq's Fixed Income Pricing System (FIPS)?
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electronic trading system for disseminating price quote and reporting trades for high-yield corporate bonds; only reports to Nasdaq and SEC, not transparent
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What are the 4 characteristics of the Eurobond sector?
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1. bonds are underwritten by an international syndicate
2. offered simultaneously to investors in a number of countries 3. issued outside of the jurisdiction of any single country 4. bonds are in unregistered form |
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What are Euro straights?
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bond that is a "plain vanilla," fixed rate coupon Eurobond; issued on unsecured basis usually by high-quality entities
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What are dual-currency issues?
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pay interest in one currency but the principal in a different currency
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What is preferred stock?
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class of stock; entitled to preferred dividends that are a specified percentage of par or face value; failing to pay preferred dividends does not force the issuer into bankruptcy; failing to pay preferred dividends may give preferred stock holders voting rights; payments to preferred stock is viewed as distribution of earnings so it is not tax deductible; debt payments (interest payments) are tax deductible
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What is cumulative preferred stock?
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preferred stock in which the dividend payment accrues until it is finally paid
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What is noncumulative preferred stock?
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preferred stock in which the dividend payment, if missed, is foregone by the stockholder
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What is perpetual preferred stock?
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preferred stock issued without a maturity date
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What are the 3 types of preferred stock?
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1. fixed-rate preferred stock
2. adjustable-rate preferred stock 3. auction and remarketed preferred stock |
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What is adjustable-rate preferred stock (ARPS)?
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its dividend rate is fixed quarterly and based on a predetermined spread from the highest of three points on the Treasury yield curve; protects against unfavorable shifts in the yield curve
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What is auction preferred stock (APS)?
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ARPS were trading below par value since dividend reset rate was determined at time of issuance, no by market conditions; APS overcomes this problem by having the dividend rate set periodically through an auction process; auction consists of current holders and potential buyers
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What is remarketed preferred stock (RP)?
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dividend rate is determined periodically by a remarketing agent who resets the dividend rate so that any preferred stock can be tendered at par and be resold at the originial offering price
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What is the Bankruptcy Reform Act of 1978?
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law governing bankruptcy in US; sets rules for how a company is liquidated (all assets will be distributed to holders of claims, no corporate entity survives) or reorganized (new corporate entity will result)
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What is a debtor-in-possession?
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a company that files for protection under the bankruptcy act and continues to operate is business under the supervision of the court; protects company from creditors seeking claims
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What is Chapter 7 of the Bankruptcy Act deal with?
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liquidation
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What is Chapter 11 of the Bankruptcy Act deal with?
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reorganization; under this, absolute priority rule is often violated; much longer process than liquidation; claims have to be sorted out; deals are often made
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What is the absolute priority rule?
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when company is liquidated, senior creditors must be paid in full before junior creditors
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