Introduction to Corporate Bonds Introduction to Corporate Bonds Legal Document Publicly Traded Raise...
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Transcript of Introduction to Corporate Bonds Introduction to Corporate Bonds Legal Document Publicly Traded Raise...
![Page 1: Introduction to Corporate Bonds Introduction to Corporate Bonds Legal Document Publicly Traded Raise Capital.](https://reader035.fdocuments.in/reader035/viewer/2022062300/56649ccb5503460f949942de/html5/thumbnails/1.jpg)
Introduction to
Corporate Bonds
Legal Document
Publicly Traded Raise Capital
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Let’s look at some terms.
Underwriters
Serial vs. Term
Face, Par, Principal
Secure vs. Unsecure
Callable vs. Convertible
Bond Indenture
Contract vs. MarketRate of Interest
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Bond TermsBond Terms
WowLet’s get started
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Underwriters
Corporate staff may not have the time or expertise, so they
Outsource the work to underwriters,Investment banks and brokerage firms:
Manage all aspects of the bond issuance
Charge a fee
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Bond
is a formal legal document
Bond Indenture
has a variety of features
needs proper wording, fine print and disclosures
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Serial vs. Term
Serial BondsA portion of the principal matures at regular intervals
Term BondsAll of the principal matures at once
Have a plan for paying the
principal
Have a plan for paying the
principal
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Secure vs. Unsecure
SecureBacked by corporate assets
UnsecureBacked by the general credit of the corporation
Creditors – Pay attention!
Creditors – Pay attention!
Debenture Bonds
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Face, Par, Principal
Interchangeable Terms Refer to the amount that must be repaid at maturity
Due at maturity
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Interest Rates
Contract Rate•Stated on the bond•Determines cash due on interest payment dates
Market Rate•Market driven•Determines • Issue price • Interest expense
Stated Rate
Effective Rate
Remains constant
Fluctuates
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Callable vs. Convertible
CallableCorporation canpay off debt early
ConvertibleBondholders can swap bonds for shares of corporate stock
Corporation decides
Bondholder decides
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ABC CorporationABC Corporation
Issue Date Maturity Date
Interest Payment Dates
Principal Contract Interest Rate
Minimum Information
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ABC CorporationABC Corporation
1/1/20X1 20 years
Interest Dates: 6/30 and 12/31
$500,000 8%PrincipalContract Interest Rate
Interest Payment Dates
MaturityIssue Date
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Interest ComputationInterest Computation
Interest due every 6 months• 6/30 and 12/31
$500,000 X .08 X 6/12 = $20,000
$500,000 X .04 = $20,000
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Journal EntriesJournal Entries
1/1/X1 – ABC Corp issues $500,000, 20 year, 8% bonds at par (100%)
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Journal EntriesJournal Entries
6/30/X1 – ABC Corp pays interest
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Journal EntriesJournal Entries
12/31/XX21 – ABC Corp pays the principal
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Balance Sheet PresentationBalance Sheet Presentation
ABC CorporationBalance Sheet
12/31/X1
Long-term Liabilities
Bonds Payable $500,000
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Advanced TopicsAdvanced Topics
Bond Discounts
Bond Premiums
Bond Retirements and Conversions
Bond Issue Price
Adjusting Entries