第二十章长期负债

McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.20-0Chapter20Long-TermDebt20.1LongTermDebt:AReview20.2ThePublicIssueofBonds20.3BondRefunding20.4BondRatings20.5SomeDifferentTypesofBonds20.6DirectPlacementComparedtoPublicIssues20.7Long-TermSyndicatedBankLoans20.8SummaryandConclusionsMcGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.20-120.1LongTermDebt:AReview•Corporatedebtcanbeshort-term(maturitylessthanoneyear)orlong-term.•Differentfromcommonstock:–Creditor’sclaimoncorporationisspecified–Promisedcashflows–Mostarecallable•Overhalfofoutstandingbondsareownedbylifeinsurancecompanies&pensionfunds•Plainvanillabondsto“kitchensink”bondsMcGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.20-2FeaturesofaTypicalBond•Theindentureusuallylists–AmountofIssue,DateofIssue,Maturity–Denomination(Parvalue)–AnnualCoupon,DatesofCouponPayments–Security–SinkingFunds–CallProvisions–Covenants•Featuresthatmaychangeovertime–Rating–Yield-to-Maturity–MarketpriceMcGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.20-3FeaturesofaHypotheticalBondIssueamount$20millionBondissuetotalfacevalueis$20millionIssuedate12/15/98BondsofferedtothepublicinDecember1998Maturitydate12/31/18RemainingprincipalisdueDecember31,2018Facevalue$1,000Facevaluedenominationis$1,000perbondCouponinterest$100perannumAnnualcouponsare$100perbondCoupondates6/30,12/31CouponsarepaidsemiannuallyOfferingprice100Offerpriceis100%offacevalueYieldtomaturity10%BasedonstatedofferpriceCallprovisionCallableafter12/31/03Bondsarecallprotectedfor5yearsafterissuanceCallprice110before12/31/08,100thereafterCallableat110percentofparvaluethrough2008.Thereaftercallableatpar.TrusteeUnitedBankofFloridaTrusteeisappointedtorepresentbondholdersSecurityNoneBondsareunsecureddebentureRatingMoody'sA1,S&PA+BondcreditqualityrateduppermediumgradebyMoody'sandS&P'sratingMcGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.20-420.2ThePublicIssueofBonds•Thegeneralprocedureissimilartotheissuanceofstock,asdescribedinthepreviouschapter.•Indenturesandcovenantsarenotrelevanttostockissuance.•Theindentureisawrittenagreementbetweentheborrowerandatrustcompany.Theindentureusuallylists–AmountofIssue,DateofIssue,Maturity–Denomination(Parvalue)–AnnualCoupon,DatesofCouponPayments–Security–SinkingFunds–CallProvisions–CovenantsMcGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.20-5PrincipalRepayment•Termbondsversusserialbonds•Sinkingfunds--howdotheywork?–Fractionalrepaymenteachyear–Goodnews--security–Badnews--unfavorablecalls–HowtrusteeredeemsMcGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.20-6ProtectiveCovenants•Agreementstoprotectbondholders•Negativecovenant:Thoushaltnot:–paydividendsbeyondspecifiedamount–sellmoreseniordebt&amountofnewdebtislimited–refundexistingbondissuewithnewbondspayinglowerinterestrate–buyanothercompany’sbonds•Positivecovenant:Thoushalt:–useproceedsfromsaleofassetsforotherassets–allowredemptionineventofmergerorspinoff–maintaingoodconditionofassets–provideauditedfinancialinformationMcGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.20-7TheSinkingFund•Therearemanydifferentkindsofsinking-fundarrangements:–Moststartbetween5and10yearsafterinitialissuance.–Someestablishequalpaymentsoverthelifeofthebond.–Mosthigh-qualitybondissuesestablishpaymentstothesinkingfundthatarenotsufficienttoredeemtheentireissue.•Sinkingfunsprovideextraprotectiontobondholders.•Sinkingfunsprovidethefirmwithanoption.McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.20-820.3BondRefunding•Replacingallorpartofabondissueiscalledrefunding.•Bondrefundingraisestwoquestions:–Shouldfirmsissuecallablebonds?–Giventhatcallablebondshavebeenissued,whenshouldthebondsbecalled?McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.20-9CallableBondsversusNoncallableBonds255075100125150175200048121620Yieldtomaturity(%)Bondprice(%ofpar)NoncallablebondCallablebondMostbondsarecallable;somesensiblereasonsforcallprovisionsinclude:taxes,managerialflexibilityandthefactthatcallablebondshavelessinterestraterisk.McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.20-1020.4BondRatings•Whatisrated:–Thelikelihoodthatthefirmwilldefault.–Theprotectionaffordedbytheloancontractintheeventofdefault.•Whopaysforratings:–Firmspaytohavetheirbondsrated.–Theratingsareconstructedfromthefinancialstatementssuppliedbythefirm.•Ratingscanchange.•Raterscandisagree.McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.20-11BondRatings:InvestmentGradeMoody'sDuff&PhelpsS&P'sCreditRatingDescriptionAaa1AAAHighestcreditrating,maximumsafetyAa12AA+Aa23AAHighcreditquality,investment-gradebondsAa34AA-A15A+A26AUpper-mediumquality,investmentgradebondsA37A-Baa18BBB+Baa29BBBLower-mediumquality,investmentgradebondsBaa310BBB-McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillComp