Chapter 15: Long-Term Financing: An Introduction

straight voting

common stock method used to vote for directors; directors are elected one at a time; leads to all-or-nothing votes, i.e. favors majority stockholders

negative covenant

a "thou shalt not" type of covenant that limits or prohibits actions taht the company might take

positive covenant

a "thou shalt" type of covenant that specifies an action that the company agrees to take or a condition the company must abide by

syndicated loan

a corporate loan made by a group of banks and other institutional investors; may be publicly traded; may be a line of credit and be "undrawn," or it may be drawn and used by a firm; always rated investment grade

sinking fund

an account managed by the bond trustee for the purpose of repaying the bonds, whereby the company makes annual payments to the trustee, who then uses the funds to retire a portion of the debt by either buying up some of the bonds in the market or calling in a fraction of the outstanding bonds

debenture

an unsecured bond for which no specific pledge of property is made

put bond

bond that allows the holder to force the issuer to buy the bond back at the stated price

convertible bond

bond that can be swapped for a fixed number of shares of stock anytime before maturity at the holder's option; relatively common, but the number has been decreasing in recent years

foreign bonds

bonds issued in a single country and usually denominated in that country's currency

Eurobonds

bonds issued in multiple countries but denominated in a single currency, usually the issuer's home currency

income bonds

bonds similar to conventional bonds, except that coupon payments are dependent on company income, i.e. paid to bondholders only if the firm's income is sufficient

floating-rate bonds (floaters)

bonds where the coupon payments are adjustable, tied to an interest rate index such as the Treasury bill interest rate or the 30-year Treasury bond rate

cumulative voting

common stock method used to permit minority participation in votes for directors, whereby the total number of votes that each shareholder may cast is determined first (usually calculated as the numebr of shared owned or controlled multiplied by the number of directors to be elected); directors are elected all at once

bearer form

form of corporate bonds meaning that the certificate is the basic evidence of ownership, and the corporation with "pay the bearer," difficult to recover if they are lost or stolen, and doesn't allow the company to notify bondholders of important events

registered form

form of corporate bonds meaning that the company has a registrar who will record the ownership of each bond and record any changes in ownership; usual form

cumulative dividends

kind of dividends on preferred stock that are the most common; carried forward as an arrearage if not paid in a particular year

dividends

paid to shareholders, representing a return on the capital directly or indirectly contributed to the corporation by the shaeholders; at the discretion of the board of directors

seniority

prefernce in position over other lenders

long-term debt securities

promises made by the issuing firm to pay principal when due and to make timely interest payments on the unpaid balance; public issue or privately placed

call provision

provision that allows the company to repurchase, or "call," part or all of the bond issue at stated prices over a specific period; usually the case

deferred call provision

provision whereby the company is prohibited from calling its bonds for the first 10 years

mortgage securities

securities (for example, bonds and stocks) secured by a mortgage on the real property of the owner (e.g. real estate such as land and buildings)

collateral

securities (for example, bonds and stocks) that are pledged as securities for payment of debt; any asset pledged on debt

call protected

state of a bond with the deferred call provision

common stock

stock that has no special preference either in receiving dividends or in bankruptcy

preferred stock

stock that has preference over common stock in payment of dividends and in the distribution of corporation assets in the event of liquidation; a form of equity from a legal and tax standpoint, but have not voting privileges

proxy

the grant of authority by a shareholder to someone else to vote her shares

protective covenants

the part of the indenture or loan agreement that limits certain actions a company might otherwise wish to take during the term of the loan; can be classified into two types: negative and positive

indenture

the written agreement between the corporation (the borrower) and its creditors when agreeing to long-term debt; aka "deed of trust"

note

unsecured obligation of a company where the maturity of the unsecured bond is less than 10 or so years from when the bond was originally issued

collar

upper and lower coupon rates for floating-rate bonds