Chapter 6 - Capital Markets

Private Issue

A __ __ typically will not require the preparation of a detailed prospectus and may be exempt from registration with the various local authorities (i.e., SEC/FCA) and can therefore be completed more rapidly than a public offering. May also have: -Lower issuance cost -Less restrictive covenants -A more favorable purchase price for the investor

State Owned Enterprise (Government Sponsored Enterprises)

A company that is created by a national government in order to participate in or help support various commercial activities on the government's behalf. Also known as government sponsored enterprises. Non-asset-backed debt is issued regularly by these entities; orgs are generally formed for a specific purpose and are often designed to support a certain economic sector. (e.g., Freddie Mac, Fannie Mae)

Indenture (Covenants)

A contract that outlines the rights and obligations of the borrower and lender. Includes various restrictive covenants that impose constraints on the actions of the company's management in an effort to protect lenders. In the US these must be approved by the SEC to ensure all provisions are met before allowing a company to sell their securities to the public. Typically outline: -Assets involved -Right of an org to issue add'l bonds -Use of second or junior mortgages -Sinking funds requirements -Reporting requirements -Restrictions involving key financial ratios and liquidity -Prepayment terms -Restrictions on dividend policy

Comfort Letter

A letter from another party stating actions that it will or will not take on behalf of the borrower. Not legally enforceable.

Term Loan

A loan with a fixed maturity, usually greater than one year, which can be repaid either n installments or in a single payment. These loans are amortizing, typically negotiated with an FI or other lender, and are not normally bought and sold on the secondary market. Normally issued for a specific financing need; interest is paid at periodic intervals and may be fixed or variable. Secured by the asset being financed, and its maturity is related to the asset's useful life. An alternative is leasing equipment, especially when the equipment seller provides specialized leasing arrangements. Normally illiquid.

Tracking Stock

A separate stock created by a parent company to track the financial progress of a particular piece of business. Trade under unique ticker symbols; meant to create opportunities for investors to buy into fast-growing units without investing in the whole company. The revenues and expenses of the segment company are extracted from the company's financial statements and are linked to the stock for valuation purposes. Do not provide stockholders with ownership in the parent company nor provide voting rights. Can be used to create a security that mirrors some key index in the market.

Originators

A subset of trading professionals who are charged with evaluating, pricing, and managing the placement of new security issues.

Master Note

A type of promissory note that is used to simplify the paperwork connected with loans that have multiple advanced features, such as lines of credit and revolvers. A company signs one comprehensive promissory note for the total amount of the line of credit.

Event of Default

An __ __ __ may occur if a borrower breaches or violates any term or condition under a debt agreement. Examples include: -Nonpayment of interest or principle when due -A material adverse change in the borrower's condition -Violation of a specified covenant -Incorrect, or misrepresentation of, representations and warranties Characteristics include: 1. Curing period 2. Remedies 3. Waivers of Default

OTC Market

An electronic information interchange, instead of a physical trading floor, that connects its trading members, and displays recent bid and ask prices for the securities it trades. Members are securities firms that may choose to maintain an inventory of equity or debt securities and stand ready to buy those same securities from investors or other dealers wishing to buy or sell them.

Qualified Institutional Broker (QIB)

An institution that manages at least $100 million in securities and can be a bank, thrift institution, pension fund, corporation, insurance company, investment company, or employee benefit plan, or an entry owned entirely by qualified investors. Can also be a registered broker-dealer that owns and invests, on a discretionary basis, at least $10 million in the securities of issuers that are not affiliated with the broker-dealer. (SEC Rule 144A)

Collateral

Assets used as security for the loan or bond issue; the condition of the assets must be monitored, their value must be determined, and in the case of physical assets, insurance may be required.

Remedies

Available options normally include an acceleration of all principal and interest on the debt when a default occurs

Par Value

Balance sheet account - An arbitrary amount that indicates the minimum amount stockholders have put up in the event of bankruptcy

Additional Paid in Capital (APIC)

Balance sheet account - This account reflects the difference at the time of issue between the par value and the issuance price (less underwriting costs) of an new stock sold by a company.

Retained Earnings

Balance sheet account - This represents the accumulated net earnings of a corporation since its inception, less dividends paid to stockholders. This is part of the stockholders' equity and is an accounting of the money reinvested in a company in lieu of dividends paid out. Not an available pool of funds.

Bond Ratings (Credit Ratings)

Bond issues and other LT debt are assigned __ __ that reflect the default probability of the company issuing debt Each issue is rated independently by one or more of the accredited rating agencies. Considerations include: 1. Rating criteria (qualitative/quantitative) 2. Importance of the ratings/risk 3. Changes in ratings

Bond Indenture

Bonds represent a contract between the issuing entity and the bondholders; this contract is known as a __ __. Serves purposes including: -Describes the bond issue -Lists collateral (if applicable) -Makes representations and warranties -Specifies covenants -States the terms the company will provide funds for redemption -Sets forth the schedule for interest payment dates and amounts, maturity date, and early redemption or call provisions

Indenture (Covenants)

Can be negative or affirmative: Negative: actions the company may not take (double pledging of collateral) Affirmative: actions the company must take (provide regular financial statements)

Credit Enhancements

Can be used as part of the borrowing arrangement or debt securities issue to improve the overall credit rating on the loan or issue. The lender is provided with reassurance that the borrower will honor the obligation, through additional collateral, insurance, or a third-party guarantee. Reduces credit/default risk of debt, thereby increasng the overall credit rating and lowering interest rates. Can be an L/C.

Classes

Companies may have multiple __ of stock oriented toward different preferences for investors. Classified stock is typically referred to as Class A or Class B; generally the different stock types may limit voting privileges, dividends or resales.

Medium-Term Notes (Intermediates)

Companies or government entities issue __ __ __ with terms in the two- to ten-year range. In most cases, these notes pay interest at periodic intervals and are very similar to long-term bonds except for the shorter maturity. May be traded actively, so they are deemed marketable (liquid) securities.

Availability

Companies with large asset basses that can be used as collateral typically borrow at lower rates than companies of the same credit quality and rating that do not have the same __ of collateral.

Transaction Processors

Critically involved in the flow of payments from issuers to investors (e.g., payments of interest, principal, and dividends), as well as the record keeping involved n processing transactions.

Subordinated Debt

Debt that is paid after other creditors have been paid

Treasury stock

Defined as stock issued by a company and later reacquired. May be held by the company's treasury indefinitely, reissued to the public, or retired. Receives no dividends and does not carry voting power while held by the the company. Considered issued by not outstanding. deducted from any capital calculations.

Preferred Stock

Equity that does not have any voting rights. Purpose is to raise capital through the issue of new equity while still maintaining control of a company. More like debt that equity because of the fixed dividend payments, but a company does not risk bankruptcy by missing a dividend payment. Does not have tax deductibility.

Capital Markets

Financial markets for the buying and selling of long-term debt (bonds) or equity-backed securities (stocks). Issued with maturities extending beyond one year. Where these do not exist, banks, international finance orgs, and government agencies provide much of the needed development capital instead. Divided into two basic segments: Debt Market: Includes fixed-income capital such as bond securities and term loans Equity Market: includes securities such as shares of common and preferred stock

Personal Guarantee

For smaller, privately held companies, the lender may require a personal guarantee on the part of the owner or other principals in the business before granting a loan.

Stock Exchanges

Generally have a physical location and hours of business when and where trading occur.

Sub-Sovereign Entities (Municipalities)

Governmental units within a country, such as states, counties, cities, and municipal government agencies. Borrow extensively in the debt markets in may countries but are not allowed in all countries. In the US , interest paid to investors on such instruments is generally exempt from federal income taxation, which may make them more attractive to certain types of investors.

Initial Public Offering (IPO)

If a firm issues equity shares to the investing public for the first time; the firm consults with its investment bankers to select an issue price that represents the highest price per share that can be obtained while simultaneously resulting in selling all the shares in the issue.

Secondary Issue (Follow-On Issue/Seasoned Offering)

If new stock shares are sold by a company with shares already trading on an exchange or the OTC market, then the new shares are referred to as a __ __. The market price of existing shares guides the price for new shares.

Private Markets

In a __ __ securities are offered and sold to a limited group of investors and not offered to the general public. Regulations generally require that these securities only be sold to a limited number of high net worth investors or to qualified institutional investors/buyers. The investment banking firm, acting as a broker, meets the prospective buyers and confirms the details of the offering.

Liens

In most types of secured lending, the lender has a legal claim on the assets used as collateral in the event it cannot take physical possession of the assets. If they borrower defaults on the loan or bond issue, the lender can seize the assets in lieu of repayment. To ensure these claims are valid and enforceable, the lender must generally follow a legal process to establish the claim by filling notice with the appropriate governmental agency. These items perfect the __ and make it enforceable in the court of law.

Performance Guarantee

In some cases, the lender may ask for specific performance guarantees relative to the assets being financed. Under a full guarantee, the parent fully guarantees performance by the subsidiary. Under a best-efforts guarantee, the parent agrees to use its best efforts to persuade the sub to perform, but it does not guarantee sub performance.

"Flight to Quality"

In these time,s investors move toward safe or quality investments; hence the yield spread between high- and low- risk investments typically increase significantly.

Equity Market

Includes securities such as shares of common and preferred stock. Instruments have no fixed maturity date, however, the security ceases to exist when the issuing firms life ends due to bankruptcy, merger, acquisition, or liquidation.

Maturity Matching

Involves matching the life of a debt issue to the life of any assets being financed for purposes of reducing a company's overall risk. Primary risk of a mismatch usually results from LT assets being funded with ST sources. Many companies will also follow a practice of "laddering" securities so that maturity dates of a company's debt obligations are staggered and the company is not faced with a large amount of bonds or other debt that comes due at the same time.

Central Banks

Issue their own securities to finance the acquisition of assets (particularly foreign exchange reserves). Often conduct open market operations, which involve sales and purchases of government debt. Some issue bonds as a monetary policy instrument only, and in some countries are banned from issuing debt to finance the government.

Participants

Key __ in capital markets include: 1. Issuers of securities a. Government and Central Banks (debt) b. Corporations (debt/equity) c. State-Owned Enterprises (debt) d. Sub-Sovereign Entities (debt) e. Mutual Fund Companies (debt/equity) 2. Investors a. Retail b. Institutional 3. Broker-Dealers a. Investment Bankers b. Originators c. Securities traders d. Syndicates 4. Regulators 5. Other a. Rating Agencies b. Transaction Processors c. Attorneys/printers/proxy solicitors/data providers

Institutional Investors

Large-scale investors (i.g., mutual funds, insurance companies, money managers, pension funds, corporations, and banks) that purchase large blocks of securities on behalf of others, as well as for their own portfolios.

Securities Traders

Maintain active, orderly, secondary markets for all equity and debt instruments.

Over-the-Counter Markets

More decentralized than formalized exchanges. Rely upon electronic communications to conduct trading activity in an auction-style market between participating brokers and dealers. Government, municipal, and corporate debt that are not traded on exchanges are sometimes traded in these markets. Emerging markets often run on this basis as well.

Target capital structure

Most CFOs and Treasurers attempt to identify the appropriate mix of long-term debt and equity to finance their firms; this is called the _______. The availability and choice of debt issues has a major impact on a company's ultimate capital structure.

Primary Markets

Offer newly issued debt and equity securities to investors when firms or government unites sell securities to raise funds.

Debt Market

Organizations and governmental entities can raise debt capital in this market. Debt capital typically imposes a fixed payment requirement on a company or a sovereign, along with coupon payments which must be paid prior to any payments to equity holders; provides financial leverage for companies. Includes: a. Term Loan b. Medium or intermediate term notes c. Long-term Bonds d. Other (1) Floating Rate Debt (2) Project Financing (3) Securitization (4) Off-Balance Sheet Financing

Securities Exchanges Markets

Organized __ __ facilitate the buying and selling of equity securities. function in various ways and provide 4 principle benefits: 1. Provide a market system where supply and demand determine market prices 2. Sustain a market where frequent trading minimizes price volatility between individual trades 3. Maintain a market large enough to enable issuers to raise large amounts of capital through securities offerings 4. Furnish a regulated environment to help ensure fairness for exchange participants

Curing Period

Period of time in which an event of default may be corrected before the lender may pursue default remedies

Rating Agencies

Play a key role in determining the credit risk, and therefore the cost/return of debt securities.

Investment Bankers

Professionals who are responsible for assisting issues in the design and placement of securities issuances. Typically include underwriting the initial offering. Along with syndicates, underwrites (purchases) a securities issue and then sells shares of that issue to the investing public.

Corporations

Raise capital through the sale of stocks and bonds. On the debt side, major issuers of commercial paper, five- to ten-year bond issues, and term loans mostly. On the equity side, are the primary issuers of both preferred and common stock, which represent ownership in these entities.

New Issues

Represent transactions that increase the outstanding stock of a publicly traded corporation, or the indebtedness of a corporation or government entity.

Common Stock

Represents ownership in a company. The management of a company acts as an agent for stockholders to protect their interests.

Equity Market

Represents the ownership of publicly owned corporations that are traded throughout the world, consisting of both primary and secondary markets. Many stocks are cross-listed on multiple exchanges, increasing both the availability of stock for investors and access to the markets for corporations raising funds.

Regulators

Role in the capital markets is to provide for consistent and transparent disclosure of financial information related to the securities traded in their markets, and to ensure a fair and level playing field for all market participants.

Mutual Fund Companies

Sell shares in many different types of money market, bond, and stock funds. Do not represent direct issuance of stocks and bonds, but rather shares sold by the fund, which holds aggregated securities, allowing smaller investors to diversity their investments more easily.

Syndicates

Selling groups which are groups of brokerage firms that combine their securities distribution networks in order to place new securities issues more effectively.

Investment Banking Firms

Serve as intermediaries in most capital market transactions; regulated entities that distribute new issues of stocks and bonds, and maintain ongoing, secondary markets for securities.

Capital Markets

The __ __ are further sub-divided into several markets: 1. Primary Markets 2. Secondary Markets a. Exchanges b. OTC 3. Private Markets

Seniority

The __ of claims is the order in which debt will be paid in the event of liquidation. Because __ affects the risk of a given loan (i.e., senior before subordinated), it impacts the interest rate and covenants related to the debt issue. In addition, __ is used to demarcate debt types in bankruptcy situation when claims are made on funds that result from asset liquidation. For unsecured debt, the indenture agreement and covenants related to each debt issue generally determine the priority of claims.

Interest Rates

The general level of __ __ and economic activity impacts both the use and cost of debt for companies. Also, the forecast of future __ __ impacts both the type of capital raised by a company and the provisions that may be attached to capital issues.

Full Guarantee

The guarantee party fully guarantees any borrowing arrangement by the sub and agrees to take over the loan if the sub fails to make timely payments

Specific-Project Guarantee

The guarantee party guarantees to make payment on the loan or collect payment from the sub, but only if the sub formally defaults on the loan. This agreement usually requires the lender to initiate default proceedings on the sub and initiate collection efforts before the parent becomes involved.

Promissory Note

The legal portion of the debt contract; an unconditional promise to pay a specified amount plus interest at a defined rate either on demand or on a certain date.

Debt Market

The market that includes fixed-income capital, such as bond securities and term loans. Typically sold with original maturities ranging from just over one year to as long as 30 or more years and is issued by borrowers with various credit ratings. Longer dated instruments are usually marginally less liquid than money market instruments, due to their longer maturity.

Secondary Markets

The market where existing debt and equity issues are traded by retail and institution investors through established exchanges or through OTC markets. Once a debt or equity security is issued in the primary market, any subsequent trades occur in this market until the debt or security is redeemed, repurchased, called, or otherwise defeated by the firm that issued it.

Debt Contract

The only way debt holders can protect their interest effectively is to perform due diligence at the time of the initial __ __ and establish certain provisions (i.e., representations, warranties, and covenants) designed to make it difficult for the management or equity holders to engage in actions that reduce the debt's value. These provisions may also give debt holders additional rights under certain deteriorating conditions or in events of default. Examples include: 1. Debt Indentures and Covenants 2. Representations and Warranties 3. Events of Default 4. Material Adverse Change Clause 5. Call and Put Provisions 6. Sinking Funds 7. Refinancing 8. Defeasance of Debt 9. Promissory Note 10. Collateral 11. Liens

Lockup Period

The period of time where insiders, such as company founders, owners, managers, employees, and venture capitalists who are holding a company's stock when it goes public are typically prohibited from reselling their stock A contractual restriction that prevents insiders from selling the stock for a period usually lasting 90 to 180 days after the company goes public.

Amortizing

The periodic payment represents both interest and principal so that the balance of the loan reduces over the term of the loan.

Balance Sheet

There accounting terms to pay attention to on the __ __ related to equity: 1. Par Value 2. Retained Earnings 3. Additional Paid in Capital (APIC) As well as: 1. Book Value per Share 2. Market Value per share 3. Treasury Stock

Tender Option (Put Bonds)

These bonds allow the holder to redeem the bond either once during its life one on a specified date(s). Redemption is usually at par value.

Collateral Trust

These bonds are backed by securities of other companies that are owned by the firm issuing the bond

High Yield (Junk Bonds)

These bonds are below investment grade (i.e., S&P<BB+, Moody's<Ba1), have high yields, and are issued by less creditworthy entities, which implies a high required yield to compensate for the additional risk.

Convertible

These bonds are corporate debt securities that can be converted by the holder, or sometimes the issuer, into shares of common or preferred stock at a fixed ratio of shares per bond. Provide the holder with a potential for capital growth, thus investors may accept a somewhat lower interest rate on these bonds compared to bonds that do not have this feature.

Multicurrency

These bonds are issued as (1) currency option bonds that allow investors to choose among several predetermined currencies or (2) currency cocktail bonds that are denominated in a standard basket of several currencies (special drawing rights).

Sovereign

These bonds are issued by a national government and are typically denominated in the currency of the issuing government. Caries credit, sovereign, and political risk, and potentially foreign exchange risk if issued in a currency other than the home currency of the investor.

Sub-soveriegn (Municipal Bonds)

These bonds are issued by any level of government below the national or central government, which includes regions, provinces, states, municipalities, etc. Assists local governments with day-t0-day operations of public services and capital investments in roads and other infrastructure that cannot be financed by the government. Most are exempt from federal and state taxes. Usually formed by options below, and may or may not be guaranteed by the national government: 1. General Obligation bonds 2. Revenue Bonds

Economic Development

These bonds are issued by developing countries or sponsoring orgs for the express purpose of fostering development of infrastructure and related projects

Equipment Trust Certificates

These bonds are secured b movable equipment; each certificate is backed by a specific asset or group of assets (i.e., fleet of trucks or railroad equipment, no blanket lien)

Foreign

These bonds are sold in a particular country by a foreign borrower, but they are usually denominated in the domestic currency of the country where issued.

Tax Increment Financing (TIF)

These bonds are used primarily for local financing in which a municipality may use all or a portion of new property taxes within a designated district to assist in the project's financing.

Mortgage

These bonds are used to finance specific assets pledged as security against the issue; typically include substantial financial covenants or indenture agreements.

Index

These bonds have interest rates tied to an economic index and are used most often when a high level of price inflation is present or possible.

Eurobonds (External Bonds)

These bonds is an international bond that is denominated in a currency other than that of the country in which it is issued. Named based on their face currency (i.e., European, Eurodollar). Typically sold simultaneously in many countries outside the country of the borrower. Can be an effective financing tool because they give issuers the flexibility to choose the currency and country in which to offer their bond, allowing multinationals to create 'natural hedges'.

Income

These bonds pay interest only if a company has profits, thus reducing some of the risk of issuing debt from a company's viewpoint

Unsecured (Debentures)

These bonds represent general claims against the issuing org's sets and/or cash flows, and may carry a higher interest cost because it is not backed by specific assets. Large, financially secure orgs issue these based on their reputation in the marketplace. May be issued on a subordinated basis, indicating that the claim on assets is subordinate to designated notes payable, bank loans, or other specified debt. May include sovereign (treasury), corporate, and municipal bonds.

Zero-Coupon

These bonds typically pay no periodic interest during their life. They are issued at a substantial discount low par value and pay par value at maturity. Adv: No cash flow until maturity, annual tax deduction until maturity Dis: Not callable or refundable, pay taxes on imputed earnings each year which equates to negative cash flow for the life of the bond

Financial Markets

These markets are typically divided into two parts: Money Markets: issues with maturities of one year or less Capital Markets: issues with maturities beyond one year

Waivers of Default

These may be given at the lender's discretion, typically for a fee or change in terms in the event of a default.

General Obligation

These sub-sovereign bonds are paid from the proceeds of general tax revenues

Revenue

These sub-soverign bonds are linked directly to, and repaid from, the revenues generated from specific public projects or service

Securitization

This capital-raising measure allows increased liquidity, thus lowering the cost of capital to borrowers. The primary corporate applications are AR and inventory. The resulting securities are known as asset-backed securities.

Project Financing

This capital-raising measure applies to large projects, often in the energy area. Also used for private infrastructure. The typical arrangement is complex, involving several companies or sponsors forming a separate legal entity to operate the project. Lenders are paid from the project's cash flows and generally do not have recourse to the project's individual sponsors or owners.

Off-Balance Sheet Financing

This capital-raising measure is designed to provide financing that does not appear on the balance sheet. Often used by companies with high levels of debt, those with restrictive covenants. Examples include: -Joint Ventures -Research and development partnerships -Sales of receivables (factoring) -Operating leases (rather than purchases of capital equip)

Material Adverse Change (MAC)

This clause lets a lender refuse funding or declare a borrower to be in default, even if all agreements are in full compliance, if the lender believes a material change has occurred in the borrower's condition. Often used as a way to renegotiate the terms of an agreement when something negative happens, rather than being used to entirely cancel the agreement.

Most Favored Nation (MFN)

This form of a covenant typically states that he bond issuer cannot offer another buyer better terms before offering those terms or better terms to the first buyer.

Floating Rate (Adjustable)

This form of debt carries interest payments that reset periodically, based on movement in a representative interest rate index, such as the LIBOR of the US T-bill. The interest rate may be reset daily, weekly, monthly, quarterly, semiannually, or annually, based on the index that is used for the security. Provides a stable market value and matches current interest rates for investors. Allows borrowers to take advantage of any drop in interest rates while matching the debt's maturity to the asset's maturity.

Refinancing

This is often done following periods of high interest rates. During high interest rate periods, many entities that must issue bonds attach call provisions that allow the bonds to be redeemed prior to maturity. When interest rates fall, companies issue new bonds at a lower interest rate and use the proceeds to retire the older, higher interest bonds.

Put

This provision allows the holder of the debt to force the issuer to repurchase the debt at specified dates. The provision generally provides that the debt will be redeemed at par, creating a floor price for the debt and providing greater security for the holder. Typically trade at a premium on the secondary markets.

Call

This provision gives the issuing entity the right to call in a bond or other issue for redemption prior to the original maturity. As compensation to investors for early redemption, a premium is generally paid when this happens. The premium is usually set on a sliding scale, with larger premiums above par required the earlier this occurs.

Sinking Funds

This provision in the indenture agreement requires companies to call or repurchase on the open market a portion of the outstanding bond issue each year. This amortizes the bonds issue over its life. Other types requires a company to make payments into a trust account, which either repurchases bonds on the open market r amasses a lump sum or retirement of the bonds at maturity. This provision makes the bond safer and lowers the required return.

Defeasance of Debt

This provision removes debt from an org's balance sheet without actually retiring the debt issue. In this arrangement, the borrower places sufficient funds in escrow, usually in gov't securities, to pay for interest and principle on the debt issue. Because control of both the debt and escrow funds is relinquished, and payment and retirement of the debt issue is now guaranteed, this debt and the related securities can be removed from the balance sheet and do not need to be considered in relation to any restrictive covenants the org may have regarding debt.

Market Value per share

This term is defined as the current price at which a share of stock is traded. Not on the accounting statements, but often included in reports issued by a company and various financial reporting services.

Book Value per Share

This term is defined as total common stockholders' equity divided by the number of shares outstanding. = Total Common Stockholders Equity / Number of shares outstanding

Retail Investors

Typically individuals buying small amounts of stocks or bonds for their own investment portfolios. A large source of demand for investment vehicles and are relied upon heavily by issuers as a very important source of capital

Governments

Typically issue debt of various maturities to finance fiscal deficits. In the US, the Treasury Dept raises funds through the sale of Treasury securities including discounted Treasury bills (T-bills), and interest-bearing notes and bonds.

Long-Term Bonds

Typically issued for periods of 10-30 years, represent a major source of long-term debt financing for many organizations. Issued like stock and are bought and sold on the secondary market. Typically not secured against any specific assets. Make regular interest payments at a fixed rate over the life of the bond; these payments are interest only and are made on a semiannual basis. Types include: 1. Mortgage Bonds 2. Unsecured Bonds (Debentures) 3. Convertible Bonds 4. Sovereign Bonds 5. Sub-Sovereign Bonds 6. Eurobonds 7. Zero-coupon bonds 8. High-Yield Bonds 9. Other a. Income Bonds b. Collateral trust bonds c. Equipment trust certificates d. Index bonds e. Economic Development bonds f. Tax increment financing bonds g. Tender option bonds h. Foreign Bonds i. Multicurrency bonds

Syndicate (Selling Group)

When a __ underwrites a securities issue, the issuing firm receives the funds directly from the bank on the issue date and may set about using the funds. The lead underwriter markets the issue to the investing public through a network of brokerage firms or __. The issue is divided among the brokerage firms based on the initial syndication agreement and the firms allocate the securities to individual offices and their registered representatives.

Guarantees

When a subsidiary of a larger company borrows funds or issues bonds, lenders may require that the parent corporation provide a guarantee of principal for the arrangement. This requirement allows lenders recourse to the guaranteeing party to obtain payment in the event the subsidiary is in default. Levels include: 1. Full Guarantee 2. Specific-Project Guarantee 3. Guarantee of Payment or Collection 4. Comfort Letter 5. Performance Guarantee 6. Personal Gurantee

Privatization

Where government-owned assets are sold to private investors or groups. The primary rationale is to help develop capital markets, widen share ownership, raise money for government, and change corporate governance.

Representations (Warranties)

__ are the existing conditions at the time when the loan agreement is executed as attested by the borrower. Conditions generally include: -Affirmation of the legal existence of the borrower -Resolution by the borrower's BOD authorizing loan -Authority of corporate officers signing the docs -Borrower's confirmation of compliance with regulations -Indemnity protecting the lender from environmental liabilities -Representation that the execution of the loan agreement does not violate or conflict with the charter or bylaws of the borrower, or any other loan agreements they are a party to