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