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Flashcards in Topic 10-2 Deck (19)
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1

One consequence of debt financing is the possibility of bankruptcy. Events preceding bankruptcy are referred to as __________.

financial distresss

2

Securities issued by corporations may be classified roughly as _________ and ________.

equity securities

debt securities

3

The person or firm making the loan is called the _________ or _________.

creditor

lender

4

The corporation borrowing the money is called the ________ or _________.

debtor

borrower

5

From a financial point of view, the main differences between Debt and Equity are the following:

1. Debt is not an ownership interest in the firm. Creditors generally do not have voting power.

2. The corporation's payment of interest on debt is considered a _____________ and is fully tax-deductible.

3. Unpaid debt is a liability of the firm. If it is not paid, the creditors can legally calim the assets of the firm. This action can result in liquidation or reorganisation, two of the possible consequences of bankruptcy. Thus, one of the costs of issuing debt is the possibilty of financial failure. This problem does not arise when equity is issued.

cost of doing business

6

__________ : written agreement between the corporation and the lender detailing the terms of the debt issue

Debenture trust deed

7

___________ is payable semi-annually on 1 July and 1 January of each year to the person in whose name the debenture is registered at the close of business on 15 June or 15 December, respectivly

Interest

8

__________ : account managed by the debenture trustee for early debenture redemption

Sinking fund

9

_____________ allows the company to repurchase or " call" part or all of the debt issue at stated prices over a specific period. Corporate debt is usually callable

A call provision

10

Generally, __________ is above the debenture's face value. The difference beteen the call price and the face value is the call- premium

the call price

11

_________ are not usually operative during the first part of the debt's life. This makes the call provision less of a worry for debtholders int he debt's early years. For example, a company might be prohibited from calling its debts for the first 10 years. This is a deferred call

Call provisions

12

_________ part of the trust deed limiting certain transactions that can be taken during the term of the loan, usually to protect the lender's interest

Protective covenant:

13

__________ : a debenture that makes no coupon payments, thus initially priced at a deep discount.

Zero coupon debenture

14

____________ the process of replacing all or part of an issue of outstanding debentures

Debenture refunding:

15

Most corporate debt is _______

callable

16

Most _________ issued are cumulative, irredeemable and non-participating.

preference shares

17

___________ : Registra of company records ownership of each note; payment is made directly to the owener of record

Registered form

18

__________ : a security whose ownership is not registered by the issuer and possession of the physical document is primary evidence of ownership.

Bearer security

19

Cost of call provision = __________

Value of call position