Debt finance Flashcards
(149 cards)
1
Q
What is borrowing money called?
A
Debt finance
2
Q
What cannot private companies offer to the public?
A
Shares
3
Q
Who do companies usually borrow money from?
A
Banks or other lenders
4
Q
What power do most companies have regarding borrowing?
A
Unrestricted power
5
Q
What documents should be checked for borrowing restrictions?
A
Company Articles
6
Q
What are the two main classifications of debt finance?
A
Loan facilities Debt securities
7
Q
What does a lender often take over borrower assets?
A
Security
8
Q
What is an agreement giving the right to borrow money?
A
Loan facility
9
Q
What on-demand facility can a bank call in immediately?
A
Overdraft
10
Q
Is an overdraft suitable for long-term borrowing?
A
No
11
Q
What type of loan is for a fixed period with a repayment date?
A
Term loan
12
Q
When can a lender demand early term loan repayment?
A
Borrower breach
13
Q
What is a single lump sum repayment at the end of a term loan?
A
Bullet repayment
14
Q
What is a term loan repayable in instalments called?
A
Amortising
15
Q
What facility allows repeated borrowing and repayment up to a limit?
A
Revolving credit facility
16
Q
What do debt securities have similarities to?
A
Equity securities
17
Q
What does a company issue for investor finance?
A
Security
18
Q
What acknowledges an investors debt rights?
A
Security
19
Q
What is a classic example of a debt security?
A
Bond
20
Q
Who promises to pay the bond value at maturity?
A
Issuer company
21
Q
How often is bond interest usually paid?
A
Biannually
22
Q
What is the market for trading bonds called?
A
Capital market
23
Q
Who receives the bond value at maturity?
A
Bondholder
24
Q
Can private companies issue bonds to the public indiscriminately?
A
No
25
What are bonds convertible into issuer shares?
Convertible bonds
26
What happens to a bondholders rights upon conversion?
Given up
27
Does a convertible bond have debt and equity features simultaneously?
No
28
What type of share has debt-like elements but is wholly equity?
Preference share
29
Do preference shareholders commonly have voting rights?
No
30
Who usually gets a dividend before other shareholders?
Preference shareholder
31
What might make a preference share look more like debt?
Fixed maturity fixed dividend
32
What might make a preference share more like traditional equity?
No fixed maturity dividend discretion
33
What statement outlines key transaction terms?
Term sheet
34
What is a term sheet equivalent to in other transactions?
Heads of terms
35
Is a term sheet intended to be legally binding?
No
36
What agreement sets out the main commercial loan terms?
Loan agreement
37
What document is heavily negotiated in debt finance?
Loan agreement
38
What separate document details loan security?
Security document
39
What term covers any form of company debt security?
Debenture
40
What is a common type of security document in secured loans?
Debenture
41
What sets out loan terms separate from security details?
Loan agreement
42
Where is the debenture sent for registration?
Companies House
43
What are statements of fact in a loan agreement?
Representations
44
What are promises to do or not do something in a loan agreement?
Undertakings
45
What clause gives the bank remedies for breaches?
Event of default
46
What does an event of default allow the bank to do?
Call in money early
47
What is temporary ownership of an asset for debt repayment?
Security
48
What is a key benefit of taking security?
Creditor protection in insolvency
49
What improves debt priority?
Taking security
50
Is enforcing security always necessary if the borrower can pay?
No
51
What security involves giving asset possession to the creditor?
Pledge
52
What is pawning an item a form of?
Pledge
53
What security involves the creditor retaining asset possession?
Lien
54
What allows a mechanic to keep a repaired vehicle?
Mechanics lien
55
What security transfers ownership to the creditor but retains possession?
Mortgage
56
What is the borrowers right to have the asset returned upon repayment?
Equity of redemption
57
What type of mortgage is usually over land?
Charge by way of legal mortgage
58
What security creates an equitable proprietary interest without ownership transfer?
Charge
59
What contractual rights does a charging document give the lender?
Appoint receiver sell asset
60
What are the two types of charges?
Fixed charges floating charges
61
Which charge is generally better for the creditor?
Fixed charge
62
What assets are fixed charges normally taken over?
Machinery vehicles
63
What is key to a fixed charge?
Creditor control of asset disposal
64
Can a borrower usually use a fixed charge asset?
Yes in ordinary business
65
What can a creditor do if a fixed charge becomes enforceable?
Appoint receiver sell asset
66
Why might a floating charge be used for trading stock?
Borrower needs to dispose freely
67
What charge floats over a class of circulating assets?
Floating charge
68
Until what event can a borrower freely dispose of floating charge assets?
Crystallisation
69
What happens when a floating charge stops floating and fixes?
Crystallisation
70
What can trigger floating charge crystallisation?
Breach of loan terms insolvency
71
Does crystallisation change a floating charges priority?
No
72
What is a disadvantage of a floating charge regarding asset value?
Uncertain value before crystallisation
73
What ranks below a fixed charge in creditor priority?
Floating charge preferential creditors
74
What clause prohibits creating a later fixed charge?
Negative pledge
75
What fund sets aside proceeds for unsecured creditors from floating charges?
Prescribed part fund
76
Under what act can floating charges be avoided?
Insolvency Act 1986
77
Can an administrator deal with floating charge assets freely?
Yes
78
What are agreements where a guarantor pays the borrowers debt if they fail?
Guarantees
79
Do guarantees give rights in assets?
No
80
What is a guarantee by a parent company for a subsidiary?
Downstream guarantee
81
What is a guarantee by a subsidiary for a parent company?
Upstream guarantee
82
What is a guarantee by one subsidiary for another?
Cross-stream guarantee
83
What might a bank seek from a new company owner?
Personal guarantee
84
What security over a home might a bank seek from a director?
Mortgage
85
Where does most company security need to be registered?
Companies House
86
How long is the deadline for registering a charge?
Twenty one days
87
What form details charge particulars for registration?
Form MR01
88
What does Form MR01 include?
Company charge date parties land ships aircraft IP
89
What must be delivered with Form MR01 for charge registration?
Certified copy of charge fee
90
What does the Registrar issue as proof of correct registration?
Certificate of registration
91
Who usually handles charge registration?
Lenders solicitors
92
What happens if a charge is not registered within the deadline?
Void against liquidator administrator creditor debt immediately payable
93
What must a company keep for inspection regarding charges?
Copy of charge amending instrument
94
Where must charge documents be available for inspection?
Registered office or permitted location
95
Who can inspect charge documents for free?
Creditor member
96
What can a court order if a company refuses charge document inspection?
Immediate inspection
97
What is a consequence of failing to comply with charge record requirements?
Fine for company officer
98
Who has first call on proceeds from their charged assets in winding up?
Creditors with fixed charges
99
Who ranks after fixed charge holders in creditor priority?
Preferential creditors
100
What happens to floating charges upon winding up?
They crystallise
101
What fund is set aside for unsecured creditors from floating charge assets?
Prescribed part fund
102
Who ranks after floating charge holders and the prescribed part fund?
Unsecured creditors
103
Who has the lowest priority in asset distribution?
Shareholders
104
What determines priority among fixed charges over the same asset?
First charge created registered
105
What determines priority among floating charges over the same asset?
First charge created registered
106
What agreement can vary the standard order of creditor priority?
Deed of Priority Intercreditor Agreement Subordination Agreement
107
How do unsecured and preferential creditors rank within their category?
Equally
108
What prevents a borrower from dealing with charged assets?
Fixed charge
109
What allows a borrower to deal with assets until crystallisation?
Floating charge
110
Which is a stronger form of security fixed or floating?
Fixed charge
111
What is the deadline for registering charges to avoid being void?
Twenty one days
112
Do charge holders have rights in an insolvency?
Yes
113
What records financial changes from share or loan issuance?
Accounts
114
What part of the balance sheet is affected by both equity and net asset value changes?
Both halves
115
What part of the balance sheet is affected by debt without changing net asset value or equity?
Top half
116
What increases in the balance sheet when shares are issued at nominal value?
Share capital cash
117
What shows what a company owns on the balance sheet?
Top half assets
118
What shows where company funds came from on the balance sheet?
Bottom half equity
119
What happens to the balance sheet total when shares are issued at nominal value?
It increases
120
How is a simple share price calculated?
Company value divided by shares
121
What is the value of a listed company called?
Market capitalisation
122
What two parts make up a share price?
Nominal value premium
123
What account records the premium on newly issued shares?
Share premium account
124
What act requires a separate share premium account?
s 610(1) CA 2006
125
What increases in the balance sheet when shares are issued at a premium?
Cash share capital share premium account
126
What ratio measures financial performance showing return to shareholders?
Earnings per share
127
How is earnings per share calculated?
Profit after tax divided by average shares
128
What happens to earnings per share with increased shares?
Dilution
129
What two things change on the balance sheet when a loan is taken out?
Liabilities cash
130
What remains unchanged on the balance sheet after a loan?
Net assets total equity
131
What is the ratio of debt to equity called?
Gearing leverage
132
What is the formula for calculating gearing?
Long term debt divided by total equity times one hundred percent
133
Does taking out a loan affect the net asset figure?
No
134
What increases with a loan but leaves net assets unchanged?
Liabilities assets
135
Why are highly geared companies a higher credit risk?
Less equity to absorb losses
136
What must a highly geared company make more of to cover interest?
Profit before interest and tax
137
What is a potential advantage of high gearing with profitable investments?
Bigger investment higher potential profit
138
Why might debt finance be preferred over equity regarding shareholders?
No share dilution
139
What might affect company profits with debt finance?
Interest loan repayments
140
Does high gearing always improve earnings per share?
No it is risky in bad times
141
What can high gearing increase the scope for in bad times?
Larger losses
142
Must loan interest be paid regardless of profit?
Yes
143
What should a company consider when choosing debt or equity finance?
Advantages disadvantages balance sheet effect
144
What is the amount of long-term debt compared to equity called?
Gearing
145
What part of the balance sheet shows nominal share amounts increasing?
Share capital
146
What part of the balance sheet shows share premiums increasing?
Share premium account
147
What increases on the balance sheet with both nominal and premium share issues?
Assets cash
148
What is the overall effect of debt finance on net assets?
No effect
149
What is the effect of debt finance on total equity?
No effect
