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43 Cards in this Set

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What are the four classifications used by bond information services?
1. utilities
2. transportations
3. industrials
4. bank and finance companies
What are bond indentures?
outlines: maturity, security and its provisions for retirement; contract that details the promises of corporate bond issuers and bondholder rights
What are bullet-maturity or bullet bonds?
term bonds- run for a term of years, then become due and payable
What are serial bonds?
specified principal amounts become due on specified dates prior to maturity
What is a mortgage bond?
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
What are collateral trust bonds?
a bond secured by stocks, notes, bonds, or other kinds of financial instruments
What are equipment trust certificates?
a form of borrowing secured by property such that title to the property is held in trust until the debt obligation is paid off
What is a debenture bond?
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
What is a subordinated debenture bond?
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
What is a guaranteed bond?
obligation quaranteed by another entity
What is refunding?
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
What is call risk or timing risk?
risk that the issuer will call the issue at a disadvantageous time; when interest rates fall
What is the sinking fund provision?
indenture requires the issuer to retire a specified portion of an issue each year; reduces credit risk
What is a convertible bond?
a corporate bond with a call option to buy the common stock of the issuer
What is an exchangeable bond?
grants bondholder the right to exchange the bonds for the common stock of a firm other than the issuer of the bond
What is a warrant?
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
What is a putable bond?
grants the bondholder the right to sell the issue back to the issuer at par value on designated dates; good if interest rates rise
What are floating-rate securities?
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
What are investment-grade bonds?
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
What are high-yield bonds or junk bonds?
bonds that carry a rating not in the top 4 classifications; noninvestment grade bonds
What is a leveraged buyout (LBO)?
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
What are fallen angels?
a bond rated investment grade at the time of issuance but subsequently downgraded to noninvestment grade
What are the 3 types of deferred coupon structues?
deferred-interest bonds, step-up bonds, payment-in-kind bonds; used to help firms with cash flow burdens like in leveraged buyout situations
What are deferred interest bonds?
bonds sell at a deep discount and do not pay interest for an initial period, typically 3 to 7 years
What are step-up bonds?
do pay coupon interest, but the coupon rate is low for an initial period and then increases to a higher coupon rate
What are payment-in-kind (PIK) bonds?
gives the issuer the option to pay cash at a coupon payment date or give the bondholder a similar bond
What is the Nasdaq's Fixed Income Pricing System (FIPS)?
electronic trading system for disseminating price quote and reporting trades for high-yield corporate bonds; only reports to Nasdaq and SEC, not transparent
What are the 4 characteristics of the Eurobond sector?
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
What are Euro straights?
bond that is a "plain vanilla," fixed rate coupon Eurobond; issued on unsecured basis usually by high-quality entities
What are dual-currency issues?
pay interest in one currency but the principal in a different currency
What is preferred stock?
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
What is cumulative preferred stock?
preferred stock in which the dividend payment accrues until it is finally paid
What is noncumulative preferred stock?
preferred stock in which the dividend payment, if missed, is foregone by the stockholder
What is perpetual preferred stock?
preferred stock issued without a maturity date
What are the 3 types of preferred stock?
1. fixed-rate preferred stock
2. adjustable-rate preferred stock
3. auction and remarketed preferred stock
What is adjustable-rate preferred stock (ARPS)?
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
What is auction preferred stock (APS)?
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
What is remarketed preferred stock (RP)?
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
What is the Bankruptcy Reform Act of 1978?
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)
What is a debtor-in-possession?
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
What is Chapter 7 of the Bankruptcy Act deal with?
liquidation
What is Chapter 11 of the Bankruptcy Act deal with?
reorganization; under this, absolute priority rule is often violated; much longer process than liquidation; claims have to be sorted out; deals are often made
What is the absolute priority rule?
when company is liquidated, senior creditors must be paid in full before junior creditors