Corporate-Bonds-Kahan-Sp06 - Corporate Bonds Outline...

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Corporate Bonds Outline Spring 2006 Professor Kahan Page 1 of 30 I. Introduction and Overview of Debt Agreements Two types of corporate bonds: Privately placed bonds – not registered with SEC or sold to the public. Note Purchase Agreements (see Northwest) Publicly issued bonds – anyone may purchase, although typically purchased by institutional investors (all others) Different types of Indentures : Senior Notes – Freeport Convertible Senior Debentures – BMS Convertible Subordinated Notes – Acclaim Senior Subordinated Notes – MCMS Senior Subordinated Notes – Kaiser Senior Notes (Private Placement) – Northwest Credit Sensitive Notes – Unisys Liquid Yield Option Notes (LYONS) (OID Bond) - Brightpoint Subordinated Extendible Reset Debentures – RJR Junior Subordinated Deferrable Interest Debentures – Hawaiian Electric Debt Exchangeable for Common Stock (DECS) – Sprint
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Spring 2006 Professor Kahan Page 2 of 30 II. The Monetary Terms A. Interest Rate and Maturity UCC §8-202 : When there is a conflict b/w the terms of the Indenture and those listed on the Security, the Security terms control. [Exam question is likely to be posed as a client asking for an opinion, you need to include how much certainty in your opinion. ] [Knowing the right result is a good thing if you have to go to court – the court wants to decide the case in such a way as to get to the right result] Terms such as the amount, interest rate, and maturity are found on the face of the Security, appended to the Indentures. Interest is typically paid 2x/year on the Interest Payment Date (IPD) to the person who is the Holder of the Security on the Interest Record Date (IRD). Issue #1 : What if the IPD falls on a Sunday or other non-business day? See Freeport and MCMS for examples of why these are potentially problems See BMS and Acclaim for how to avoid the IPD falling on a Sunday problem (specifically address the potential for that situation) Issue #1a : If the Interest is paid on a later date (for ex Feb 3 instead of Feb 1) how much interest is paid on the next IPD? Principles of Problem Set #1 1. the registered Holder on the IRD is entitled to receive the interest due 2. the interest payment = principal amount of securities ×interest rate ÷ # of payments per year 3. if the Co. defaults on payment of interest, look to the § on Defaulted Interest and also the definitions of Event of Default to determine if the Co. is restricted from curing the default in any way. (see MCMS for an ex. of how the default could not be cured under the terms of §2.12 – in that situation, it is likely better to violate the terms of §2.12 rather than causing an Event of Default to occur (which would give Holders the right to accelerate). 4.
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This note was uploaded on 04/04/2008 for the course LAW ALL taught by Professor Multiple during the Fall '06 term at NYU.

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Corporate-Bonds-Kahan-Sp06 - Corporate Bonds Outline...

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