LONG – TERM DEBT, PREFERRED STOCK, AND COMMON STOCK Features of Bond: 1.Par Value: Par value for a bond repr repres esen ents ts the the amou amount nt to be paid paid the the lender at the bond’s maturity. It is also called face value or principal. Par value is usually $1,000 per bond (or some multi ultipl plee of $1 $1,0 ,000 00). ). With the the mao maor r e!cept e!ception ion of a "ero#c "ero#coup oupon on bon bond, d, mo most st bonds pay interest that is calculated on the basis of the bond’s par value. (he face value of a stoc% or bond).
ubordinated Debenture: lon+# term, unsecured debt instrument ith a loer claim on assets and income than other classes of dent %non as unior debt. In!o"e Bond: bon ond d here here the the payment of interest is contin+ent upon sufficient earnin+s of the firm. #un$ Bond: hi+h#ris% hi+h#ris%,, hi+h#yiel hi+h#yield d (often (often uns unsecu ecured red)) bon bond d rated rated belo belo investment +rade.
2.Coupon Rate: he stated rate of interest on a bond is referred to as the coupon rate. &or e!ample, a 1' percent coupon rate rate indi indica cate tess that that the the issu issuer er ill ill pay pay bondholders $1'0 per annum for every 1,000#par#value 1,000#par#value bond that they hold.
Mort%a%e Bond: bond issue secured by a mort+a+e on the issuer’s property. property. &'uip"ent Trust Trust Certifi!ate: n inte interm rmed ediat iatee to usua usuall lly y issu issuee by a tran transp spor orta tati tion on com company pany such such as a rail railro road ad or air airline line that that is used sed to finance ne e-uipment.
3.Maturity: *onds almost alays have a stated maturity. his is the time hen the company is obli+ated to pay the bondholder the par value of the bond. bond. Trustee: person or institution desi+nated by a bond issuer as the official repr epresen esenta tati tiv ve of the the bo bond ndho hollder ders. ypically, a ban% serves as trustee.
in$in% Fund: &und &und establ establish ished ed to periodically retire a portion of a securi security ty issue issue before before matur maturity ity.. h hee corp corpo orati ratio on is re-u e-uired red to ma%e a%e periodic sin%in+#fund sin%in+#fund payments to a trustee.
Indenture: h hee le+a le+all a+re a+reem emen ent, t, also also call called ed the the deed deed of trus trust, t, bet betee een n the the corporation issuin+ bonds and the bondholders, establishin+ the terms of the bond issue and namin+ namin+ the trustee.
Sinking fund of bond can take two forms: i) h hee corp corpor orat atio ion n can can ma%e a%e cash cash payment to trustee hich intern calls the bond for retention at the sin%in+ fund call price.
Debenture: lon+ term, unsecured debt instrument.
ii) he second option available to issuin+
)rreara%e: late or overdue payment, hich may be cumulative.
fund is to purchase the bond in the open mar%et and to deliver the +iven number of bonds to the trustee.
Parti!ipatin% Preferred to!$: Preferred stoc% here the holder is alloed to participate in increasin+ dividends if the common stoc%holders receive increasin+ dividends.
Balloon Pay"ent: payment on debt that is much lar+er than other payments. he ultimate balloon payment is the entire principal at maturity.
Pri!e*&arnin%s Ratio: the mar%et price per share of a firm’s common stoc% divided by the most recent 14 months of earnin+s per share.
(/oan interest)#fi!ed amount (at last payment) ########################################################2 fi!ed amount Periodic payment *alloon Payment
erial Bonds: n issue of bonds ith different maturities, as distin+uished from an issue here all the bonds have identical maturities (term bonds).
Treasury to!$: 5ommon stoc% that has been repurchased and is held by the issuin+ company. (Issued 6toc% 7 8utstandin+ 6toc% reasury 6toc%)
Call Pro(ision: feature in an indenture that permits the issuer to repurchase securities at a fi!ed price (or a series of fi!ed prices) before maturity3 also called call feature.
)ssi%ned +or stated, Value: nominal value assi+ned to a share of no#par common stoc% that is usually far belo the actual issuin+ price.
Call Pri!e: he price at hich a security ith a call provision can be repurchased by the issuer prior to the security’s maturity.
Additional Paid-In Capital: &unds
When Call price>Market price open market techniques requires.
-istin%: dmission of a security for tradin+ on an or+ani"ed e!chan+e. security so admitted is referred to as a listed security.
received by a company in a sale of common stoc% that are in e!cess of the par or stated value of the stoc%.
When Call price
Proy: le+al document +ivin+ one person the authority to act for another. In business, it +enerally refers to the instructions +iven by a shareholder ith re+ards to votin+ shares of common stoc%.
When market interest rate of same debt fall then call option is require. Cu"ulati(e Di(idends Feature: re-uirement that all cumulative unpaid dividends on the preferred stoc% be paid before a dividend may be paid on the common stoc%. 9
Ma/ority0Rule Votin%: method of electin+ corporate directors, here each common share held carries one vote for each director position that is open3 also called statutory votin+. Cu"ulati(e Votin%: method of electin+ corporate directors, here each common share held carries as many votes as there are directors to be elected and each shareholder may accumulate these votes and cast them in any fashion for one or more particular directors.
Con(ertibility: convertibility feature permits preferred stoc%holders to convert their preferred into shares of common. Preferred stoc%s that permit this are called convertible preferred. eneral Cas ffers: It involves the sale of securities to all interested investors3 that is, they are public issues offered to any investor. public issue, unless very small, must be re+istered ith the 6<5.
Duel0Class Co""on to!$: o classes of common stoc%, usually desi+nated 5lass and 5lass *. 5lass is usually the ea%er votin+ class, and 5lass * is usually the stron+er. cumulative feature ill or% only three years.
Initial Publi! fferin% +IP,: n initial public offerin+ (IP8) is the first public#e-uity issue made by a firm as it +oes from private onership to public onership. hese issues are referred to as unseasoned ne issues because no previous publicly oned common stoc% e!isted.
Refundin%: :eplacin+ an old debt issue ith a ne one, usually to loer the interest cost.
In(est"ent Ban$ers: &inancial intermediaries ho perform a variety of services, includin+ aidin+ in the sale of securities, facilitatin+ mer+ers and other corporate reor+ani"ations, actin+ as bro%ers to both individual and institutional clients, and tradin+ for their on accounts.
Call Pre"iu": he e!cess of the call price of a security over its par value. (5all price 7 Par value). Cu"ulati(e Di(idend: ;ividend on preferred stoc% that ta%es priority over dividend payments on common stoc%. ;ividends may not be paid on the common stoc% until all past dividends on the preferred stoc% have been paid.
elf Re%istration: 6<5 re+ulation alloin+ firms to re+ister an issue of securities and sell them over time as conditions arrant.
=
