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Summary CH24 Debt Financing
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CH24: Debt Financing24.1 Corporate Debt
According to the trading, debt can be:
Public: debt that is publicly traded
- Advantage: liquid market
- Disadvantage: cost of registration
Private: debt that is not publicly traded
According to the registration, public debt can be:
Bearer bonds: similar to currency in that whoever physically holds the bond certificate owns the
bond. Not that important, trade this without anyone knowing
Registered Bonds: the issuer of this type of bond maintains a list of all holders of its bonds
According to the collateral, public debt can be:
Secured: in the event on bankruptcy, the lender receives an asset, called collateral
- Mortgage bonds: the asset is real estate
- Asset-Backed Bonds: can be secured by any kind of asset
Unsecured: debt is not back up by collateral
- Notes < 10 years maturity
- Debentures > 10 years maturity
Main concepts:
Coupon: amount paid to bondholders periodically (usually semi-annually)
Face value: amount promised to be paid at a later date. FV price
Maturity: time when the FV of the bond must be paid
Seniority: the priority of payment in case of bankruptcy, higher seniority implies a higher
likelihood of recovering the principal
Tranches
A bond issuance might include different types of bond name tranches: TABLE 24.3
A subordinated note is riskier than a senior note because the maturity is longer, and they get
their money as last.
Private debt
Term loan: a bank loan that lasts for a specific term
Syndicated bank loan: a loan issued by a group of lenders
Revolving line of credit: a credit commitment for a specific period
Private placement: a bond issue that is sold to a small group of investors rather than the
general public
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