Fall 2010 Class 4

Principaland interestpaymentsonthedebtwere

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Unformatted text preview: ebt was only upon the liquidation, if ever, of the Predecessor Company. Principal and interest payments on the debt were unsecured and were subordinated to the prior payment in full of all indebtedness for borrowed money. Question: Debt or Equity? Answer: Debt-Air Canada has the obligation to pay interests, not the principal. Answer: Debt-Air Callable / Redeemable preferred Callable / Redeemable preferred shares • Shares that will be redeemed by the Shares issuing company. issuing • Question: Debt or Equity? • Answer: It depends. Answer: – Debt, if little or no discretion to avoid Debt, redeeming the shares. redeeming – Equity, if the issuing company has the option not to redeem the shares. Retractable preferred shares Retractable preferred shares • The holders have the option to force the company to redeem the instrument. • Question: Debt or Equity? • Answer: Debt-Obligation exists for the Answer: Debt-Obligation company to pay cash when the shares are redeemed. Convertible debt example Convertible debt example Source: Air Canada 2005 Annual Report Question: Debt or Equity? Answer: Debt & Equity­­The interests and principal are d...
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