CH10 - Chapter 10 Default Risk 10-1 Bond Indenture Every...

Info iconThis preview shows pages 1–8. Sign up to view the full content.

View Full Document Right Arrow Icon
10-1 Chapter 10 Default Risk
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
10-2 Every bond issue has a contract called the bond indenture among three parties – the bondholders, the issuer, and the trustee. The trustee is appointed to protect the interests of the bondholders and must be independent of the issuing firm. Bond Indenture
Background image of page 2
10-3 Corporate bond issues have protective covenants. These are restrictions on the issuer to prevent the issuer from taking advantage of the bondholders. Typical protective covenants include restrictions on Issuance of additional debt. Dividends. Mergers. Disposition of assets. Protective Covenants
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
10-4 Default is a violation of any part of the bond indenture agreement. Some defaults involved nonpayment of interest or principal. Other defaults involve violation of some protective covenant in the bond indenture. Default
Background image of page 4
10-5 The trustee acts on behalf of the bondholders in the event of default. If there is a nonpayment of cash, 100 percent agreement of the bondholders is required for the trustee to take action. For other defaults, complete agreement of the bondholders is not necessary for the trustee to act.
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
10-6 Default Renegotiate Bankruptcy Reorganize Liquidate
Background image of page 6
Fishermen acting individually $100,000 now Fishermen acting in concert $25,000 annually Common Pool Problem . 000 , 250 $ 10 . 0 25,000
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 8
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 06/07/2011 for the course FIN 4243 taught by Professor Dudley during the Spring '08 term at University of Florida.

Page1 / 22

CH10 - Chapter 10 Default Risk 10-1 Bond Indenture Every...

This preview shows document pages 1 - 8. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online