lecture_6-long_term_finance_-_debt (2)

lecture_6-long_term_finance_-_debt (2) - MA826 6 Sources of...

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MA826 6- Sources of Long-Term Company Finance - Debt Two main long- term methods of raising company finance are: issuing debt- great variety issuing equity - ordinary and preference shares
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Loan Capital A company issues loan capital and pays the investor a stream of pre- specified interest payments plus an eventual return of the capital. Three types of loan instruments: Long term : “stocks” Medium term : “ bonds” Short term : “ bills”
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Features of Loan Capital “ Par value” : units of £100 nominal Interest payments are a proportion of par value. Eg an 11% Eurobond of £100 nominal. Issued at a price close to, or below par. Eg a £100 nominal bond could be issued at £98.
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Redeemed at par at a set date, but market price need not be the par value. Price of a bond inversely related to the interest rate. Holders are creditors of the company and rank equally with other creditors in wounding-up. Coupon payments every six months. A “Trust Deed” sets out the rights of the stock holders.
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Variations A set period for capital repayment. “ Variable rate issues” “ index-linked bonds” “stepped bonds” A “call option” on the bond A “put option” on the bond “sinking funds”
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Debenture Stocks Loans secured on some, or all of the assets of the company. In case of default on interest payments or capital repayments, the stockholder can: Appoint a receiver to intercept income from the secured assets. Take possession and sell the secured asset-
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This note was uploaded on 06/07/2011 for the course MA 826 taught by Professor Loba,millet during the Spring '11 term at Kent Uni..

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lecture_6-long_term_finance_-_debt (2) - MA826 6 Sources of...

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