Debt Finance (11) Flashcards
(17 cards)
What is a secured bond?
A bond backed by a specific asset, the bond issuer passes title of the asset onto the bondholders if they default
What are unsecured bonds?
Unsecured bonds (debentures) are backed only by the reputation of the issuer (usually large well-known companies).
What is a Loan Stock?
Where stock (shares) are issued by a company as collateral for a fixed interest loan
What is a sinking fund?
A fund managed by trustees that the company pays into until it can redeem all outstanding bonds.
What are green bonds?
Green bonds are debt instruments issued to raise funds specifically for environmentally friendly projects
What does debt rating depends on?
Likelihood of payments of interest or capital not being paid
The extent to which the lender is protected in the event of a default
Who classifies debt (bonds)?
Credit rating agencies (CRAs)
What is a syndicated loan?
Syndicated loans are large loans provided to a borrower by a group of lenders (a syndicate) who share the risk and funding.
What is Mezzanine Financing?
Mezzanine financing is a hybrid form of funding that combines debt and equity features, often includes equity warrant or share options. Higher risk debt - higher reward.
Give 3 examples of high risk debt
Mezzanine Financing
High-Yield (junk) Bonds
Leveraged Loan Market
What are High-Yield Bonds?
Bonds with high-risk and high-return (ratings of Bs and Cs)
What are Leveraged Loans?
Leveraged loans are loans made to companies or individuals that already have high levels of debt or a lower credit rating, making them riskier for lenders.
For who would high-risk debt markets be useful too?
Fast growing companies
Firms gearing up to finance mergers
Private Equity companies
What is project finance?
a method of funding large, capital-intensive projects—like power plants, infrastructure, or oil & gas, where the loan is repaid using the cash flow generated by the project itself
What are some advantages of project finance?
Spreading risk
Simplifies banking relationship
What is sale and leaseback?
A firm sells a building to another firm who simultaneously agrees to lease the property back for a stated period under specific terms.
Seller receives cash immediately
What are some disadvantages of Sale and leaseback?
Asset is no longer owned and any capital appreciation has to be forgone
Rental payments increase at regular intervals
Eliminates flexibility to move to cheaper premises
