Chapter 6: Corporate Actions Flashcards
(36 cards)
What is a Preference Share?
Why are they AKA hybrid?
A PS are hybrid instrument, as income events are dividends, but these are specified (amount & frequency), similar to a bond.
There is a also no contract to oblige the issuer to pay these.
What is a Bullet Payment?
Whereby the principal of the bond is paid in a lump sum payment.
What is a Non-Bullet Issue?
Whereby the principal of the bond can be paid over a series of payments.
Which Bonds Typically Have Higher Coupons?
Bullet or Non-Bullet?
Bullets
As the lump sum payment is more uncertain causing a higher default risk, demanding higher coupons to relfect this.
What is a Sinking Fund?
4 points? ChatGPT ones?
- A variation of the Single Bullet Maturity
- Issuer sets aside funds annually for maturity payment
- Funds held by a trustee, used for bond buybacks (sub par value) or held until maturity
- Reduces defualt risk
What is a Putable Bond?
A bond that gives the investors the flexibility to require the bonds to be redeemed early, after giving the issuer due notice.
What is a Callable Bond?
Where the issuer has the right, at specified points, to redeem some or all of the bonds at a pre agreed amount, often par value.
What is a Bonus Issue?
Definition
A bonus issue is where a company issues new shares to its shareholders for no consideration, raising no further capital.
What is a Bonus Issue AKA?
2 more
- Scrip Issue
- Capitalisation Issue
Why are Bonus Issues Used?
To improve the liquidity and marketability of their shares.
How are Bonus Issue Shares Created?
Why does this change shareholder funds in company accounts?
These are made by converting undistrubuatble capital reserves into share capital. Converts reserves from previous share premiums or retained profits.
What Changes Following a Bonus Issue to a Companies Value?
- Nominal Value of the share capital will increase proportionatley to the number of shares issued.
- The net worth of the business should remian the same
What Changes Following a Bonus Issue to a Companies Mkt. Cap?
- Dividends per share will proportionatley fall, in line with the market value
- However Market Cap should remain the same.
Why Might a Bonus Issue Increase Share Value?
Once a share is double figures (UK) or $200, it is considered expensive, so improving the liquidity can result in a bigger market an increased share price.
What is a Stock Split?
How is this represented?
A corporate action whereby issued shares are divided into muliple shares.
E.g. 1 share becoming 5 is a “5-for-1 Split”
What is a Reverse Stock Split? (Consolidation)
A corporate action whereby issued shares are combined, to boost a shares value. This makes them more valuable if the share values have fallen too low.
This, like a regular split, has no impact on the accounts.
What is the Ex-Bonus Price?
Not an Ex-girl…….
The price after the issue.
What is the Cum-Bonus Price?
The price before the issue.
What is a Pre-Emptive Right?
Definition
A pre-emptive right is a right (but not obligation) of existing shareholders in a corporation to purchase newly issued stock before it is offered to others. To protect current shareholders from dilution or control loss.
Why do Pre-Emptive Rights Exist?
To prevent the issue of new shares, convertibles etc, other than to existing shareholders, with the prior approval in a meeting (AGM).
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What is a Special Resolution?
Why is it needed?
Jurisdictions require this from shareholders before before allowing new shares to be alloted in cash to anyone other than existing shareholders.
What is the Maximum Issuance of New Shares p/a?
5%
Unless there is a detailed reason otherwise
What is a Rights Issue?
What does this mean?, Can this be traded?
- A rights issue is an offer by a company of new shares for cash to the existing shareholders in proportion to their holding
- Usually at a discount
- This right (privellage) can be traded
Do Rights Have an Expiry Date?
If so are they short or long term
Yes, these are usually short term.
