企业财务管理--长期负债.pptx

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1、McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.20-0Chapter 20 Long-Term Debt20.1 Long Term Debt:A Review20.2 The Public Issue of Bonds20.3 Bond Refunding20.4 Bond Ratings20.5 Some Different Types of Bonds20.6 Direct Placement Compared to Public Issues20.7 Long-T

2、erm Syndicated Bank Loans20.8 Summary and ConclusionsMcGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.20-120.1 Long Term Debt:A ReviewCorporate debt can be short-term(maturity less than one year)or long-term.Different from common stock:Creditors claim on corporati

3、on is specifiedPromised cash flowsMost are callableOver half of outstanding bonds are owned by life insurance companies&pension fundsPlain vanilla bonds to“kitchen sink”bondsMcGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.20-2Features of a Typical BondThe indentu

4、re usually listsAmount of Issue,Date of Issue,MaturityDenomination(Par value)Annual Coupon,Dates of Coupon PaymentsSecuritySinking FundsCall ProvisionsCovenantsFeatures that may change over timeRatingYield-to-MaturityMarket priceMcGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All ri

5、ghts reserved.20-3Features of a Hypothetical BondMcGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.20-420.2 The Public Issue of BondsThe general procedure is similar to the issuance of stock,as described in the previous chapter.Indentures and covenants are not rele

6、vant to stock issuance.The indenture is a written agreement between the borrower and a trust company.The indenture usually listsAmount of Issue,Date of Issue,MaturityDenomination(Par value)Annual Coupon,Dates of Coupon PaymentsSecuritySinking FundsCall ProvisionsCovenantsMcGraw-Hill/IrwinCopyright 2

7、002 by The McGraw-Hill Companies,Inc.All rights reserved.20-5Principal RepaymentTerm bonds versus serial bondsSinking funds-how do they work?Fractional repayment each yearGood news-securityBad news-unfavorable callsHow trustee redeemsMcGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.A

8、ll rights reserved.20-6Protective CovenantsAgreements to protect bondholdersNegative covenant:Thou shalt not:pay dividends beyond specified amountsell more senior debt&amount of new debt is limitedrefund existing bond issue with new bonds paying lower interest ratebuy another companys bondsPositive

9、covenant:Thou shalt:use proceeds from sale of assets for other assetsallow redemption in event of merger or spinoffmaintain good condition of assetsprovide audited financial informationMcGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.20-7The Sinking FundThere are

10、many different kinds of sinking-fund arrangements:Most start between 5 and 10 years after initial issuance.Some establish equal payments over the life of the bond.Most high-quality bond issues establish payments to the sinking fund that are not sufficient to redeem the entire issue.Sinking funs prov

11、ide extra protection to bondholders.Sinking funs provide the firm with an option.McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.20-820.3 Bond RefundingReplacing all or part of a bond issue is called refunding.Bond refunding raises two questions:Should firms issu

12、e callable bonds?Given that callable bonds have been issued,when should the bonds be called?McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.20-9Callable Bonds versus Noncallable BondsMost bonds are callable;some sensible reasons for call provisions include:taxes,

13、managerial flexibility and the fact that callable bonds have less interest rate risk.McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.20-1020.4 Bond RatingsWhat is rated:The likelihood that the firm will default.The protection afforded by the loan contract in the

14、event of default.Who pays for ratings:Firms pay to have their bonds rated.The ratings are constructed from the financial statements supplied by the firm.Ratings can change.Raters can disagree.McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.20-11Bond Ratings:Inves

15、tment GradeMcGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.20-12Bond Ratings:Below Investment GradeMcGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.20-13Junk bondsAnything less than an S&P“BB”or a Moodys“Ba”is a junk bond.A pol

16、ite euphemism for junk is high-yield bond.There are two types of junk bonds:Original issue junkpossibly not ratedFallen angelsratedCurrent status of junk bond marketPrivate placementYield premiums versus default riskMcGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved

17、.20-1420.5 Different Types of BondsCallable BondsPuttable BondsConvertible BondsDeep Discount BondsIncome BondsFloating-Rate BondsMcGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.20-15Puttable bondsPut provisionsPut pricePut datePut defermentExtendible bondsValue

18、of the put featureCost of the put featureMcGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.20-16Convertible BondsWhy are they issued?Why are they purchased?Conversion ratio:Number of shares of stock acquired by conversionConversion price:Bond par value/Conversion r

19、atioConversion value:Price per share of stock x Conversion ratioIn-the-money versus out-the-moneyMcGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.20-17Convertible Bond PricesMcGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.20-18

20、Example of a Convertible BondMcGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.20-19More on ConvertiblesExchangeable bondsConvertible into a set number of shares of a third companys common stock.Minimum(floor)value of convertible is the greater of:Straight or“intri

21、nsic”bond valueConversion valueConversion option valueBondholders pay for the conversion option by accepting a lower coupon rate on convertible bonds versus otherwise-identical nonconvertible bonds.McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.20-20Example of a

22、n Exchangeable BondMcGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.20-2120.6 Direct Placement Compared to Public IssuesA direct long-term loan avoids the cost of registration with the SEC.Direct placement is likely to have more restrictive covenants.In the event

23、of default,it is easier to“work out”a private placement.McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.20-2220.7 Long-Term Syndicated Bank LoansMcGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.20-2320.8 Summary and Conclusions

24、The details of the long-term debt contract are contained in the indenture.The main provisions are:security,repayment,protective covenants and call provisions.Protective covenants are designed to protect bondholders from management decisions that favor stockholders at bondholders expense.Most public

25、industrial bonds are unsecuredthey are general claims on the companys value.Most utility bonds are secured.If the firm defaults on secured bonds,the trustee can repossess the asset.McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.20-2420.8 Summary and Conclusions(

26、cont.)Long-term bonds usually provide for repayment of principal before maturity.This is usually accomplished with a sinking fund whereby a firm retires a certain number of bonds each year.Most publicly issued bonds are callable.There is no single reason for call provisions.Some sensible reasons include taxes,greater flexibility,and the fact that callable bonds are less sensitive to interest-rate changes.There are many different types of bonds,including floating-rate bonds,deep-discount bonds,and income bonds.