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1、Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall7-1Chapter 7Corporate Debt InstrumentsCopyright 2010 Pearson Education, Inc. Publishing as Prentice Hall7-2Learning ObjectivesAfter reading this chapter, you will understand the different types of securities issued by the Treasury the
2、 key provisions of a corporate bond issue provisions for paying off a bond issue prior to the stated maturity date corporate bond ratings and what investment-grade bonds and noninvestment-grade (or high-yield) bonds are event risk bond structures that have been used in the high-yield bond market emp
3、irical evidence concerning the historical risk and return pattern in the corporate bond market what a recovery rating is the secondary market for corporate bondsCopyright 2010 Pearson Education, Inc. Publishing as Prentice Hall7-3Learning Objectives (continued)After reading this chapter, you will un
4、derstand the different types of securities issued by the Treasury the private-placement market for corporate bonds a medium-term note the difference between the primary offering of a medium-term note and a corporate bond what a structured medium-term note is and the flexibility it affords issuers wh
5、at commercial paper is and why it is issued the credit ratings of commercial paper the difference between directly placed and dealer-placed commercial paper what a bank loan is and the difference between an investment-grade bank loan and a leveraged bank loan the market for leveraged loansCopyright
6、2010 Pearson Education, Inc. Publishing as Prentice Hall7-4Corporate Bonds Features of a Corporate Bond Issue Corporate bonds are classified by the type of issuer. o The four general classifications used by bond information services are utilities, transportations, industrials, and banks and finance
7、companies. The essential features of a corporate bond are straightforward. The corporate issuer promises to pay a specified percentage of par value (the coupon payments) on designated dates and to repay par or principal value of the bond at maturity. Failure to pay either the principal or interest w
8、hen due constitutes legal default, and investors can go to court to enforce the contract.Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall7-5Corporate Bonds (continued) Features of a Corporate Bond Issue Corporate bonds are classified by the type of issuer. The indenture is made out
9、 to the corporate trustee as a representative of the interests of bondholders; that is, a trustee acts in a fiduciary capacity for investors who own the bond issue. Most corporate bonds are term bonds; that is, they run for a term of years, then become due and payable. Generally, obligations due in
10、under 10 years from the date of issue are called notes. Serial bonds are arranged so that specified principal amounts become due on specified dates.Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall7-6Corporate Bonds (continued) Security for Bonds Some companies own securities of oth
11、er companies; they are holding companies, and the other companies are subsidiaries. Debenture bonds are debt securities not secured by a specific pledge of property. Subordinated debenture bonds rank after secured debt, after debenture bonds, and often after some general creditors in their claim on
12、assets and earnings. For a given corporation, secured debt (such as mortgage bonds) will cost less than debenture bonds, and debenture bonds will cost less than subordinated debenture bonds. Guaranteed bonds are obligations guaranteed by another entity.Copyright 2010 Pearson Education, Inc. Publishi
13、ng as Prentice Hall7-7Corporate Bonds (continued) Provisions for Paying off Bonds Most corporate issues have a call provision allowing the issuer an option to buy back all or part of the issue prior to the stated maturity date. The premium plus the principal at which the issue is called is referred
14、to as the make-whole redemption price. The prices shown in Exhibit 7-1 are called the regular or general redemption prices. (See truncated version of Exhibit 7-1 in Overhead 7-8.) There are also special redemption prices for debt redeemed through the sinking fund and through other provisions, and th
15、e proceeds from the confiscation of property through the right of eminent domain.Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall7-8Exhibit 7-1 Redemption Schedule for Anheuser-Busch Cos., Inc., 10% Sinking Fund Debentures Due July 1, 2018The Debentures will be redeemable at the op
16、tion of the Company at any time in whole or in part, upon not fewer than 30 nor more than 60 days notice, at the following redemption prices (expressed in percentages of principal amount) in each case together with accrued interest to the date fixed for redemption: If redeemed during the 12 months beginning July 1, Redemption 1999104.5% 2000104.0% 20
