捍片睡汩楈桧牥畤惯楴-Chapter Corporate Bonds.pptVIP

Chapter 11Corporate Bonds Corporate Bond Basics Types of Corporate Bonds Bond Indentures Protective Covenants Bonds without Indentures Preferred Stock Adjustable-Rate Bonds Preferred Stock Corporate Bond Credit Ratings Junk Bonds Bond Market Trading Summary Conclusions Bond Basics Corporate debt Principal Coupons Different from common stock: Creditor’s claim on corporation Promised cash flows Most are callable Over 1/2 owned by life insurance companies pension funds Cash flow matching Bond indenture Plain vanilla bonds Unsecured debt Rating agency Bond Issue Terms Corporate Bond Types Notes versus bonds Debentures Mortgage bonds Collateral trust bonds Equipment trust certificates Leasing arrangements The Indenture Indenture summary Prospectus Senior debentures / subordinated debentures Negative pledge clause Call feature--bond refunding Deferred call provision / call protection Call premium (anti) refunding provision Cost of the call feature / convexity Put bonds Put provisions Put price Put date Put deferment Extendible bonds Value of the put feature Cost of the put feature Convertible bonds Why are they issued? Why are they purchased? Conversion ratio: CR = No. of stock shares acquired by conversion Conversion price: CP = Bond par value / Conversion ratio Conversion value: CV = Price per share of stock x Conversion ratio In-the-money versus out-the-money Conversion strategy Optimal conversion? Forced conversion When do calls typically occur? What should an investor do? More on Convertibles Exchangeable bonds Minimum (floor) value of convertible: Straight or “intrinsic” bond value Conversion value Conversion option value Principal repayment Term bonds versus serial bonds Sinking funds--how do they work? Fractional repayment each year Good news -- security Bad news -- unfavorable calls How trustee redeems Protective Covenants Agreements to protect bondholders / Event risk Negative covenant: Thou shalt not: pay dividends beyond specified amount sell more seni