corporate debt securities outline

corporate debt securities outline

1. corporate debt securities are issued by corporations to raise capital($) to fund their operations. 
2. bonds are issued through the over-the-counter market
3. bonds may be listed on stock exchanges for secondary market trading
4. often referred to as funded debt-they ar edifferent from the short term debt obligations of the company
5. funds received are for the company's long term use
6. corporate notes are short term debt securities that mature in less than one year, usually less than 270 days, the lenders become creditors
7. bondholder, a person who holds (owns) bonds of a corporation, considered a creditor of the issuer
8. if a corporation goes bankrupt, bondholders have a claim to the assets of the corporation for repayment of their principal and interest
9. secured bondholders are paid back before general creditors
10. in bankruptcy payback goes to these groups using this order: bondholders, general creditors, preferred stockholders, common stockholders are paid back
11. interest payments are made to bondholders before tax payments are made
12. interest payments reduce a corporation's gross taxable income
13. bond interest is paid before the payments of any dividends to stockholders
14. bondholders have no voting rights or control over management of the corporation

Types of bonds
interest bearing bond-interest is paid 2x a year-semiannually, some only pay interest at the bond's expiration, bond maturity date

1. face value, principal amount,is paid at maturity
2. all bonds have a face value of $1000 and are sold in multiples of $1000
3. nominal yield,coupon,rate is the interest that corporations pay
4. corporations try to issue the bonds with interest rates as low as possible to keep their own capital costs as low as possible
5. callable, bonds that the corporation can repurchase before the bond matures if interest rates are high

non-interest bearing or zero coupon bonds

1. don't pay interest during their life
2. pay all  interest at maturity
3. sold at a discount
4. sold at less than face value
5. gain is the difference between purchase price and maturity price

Length of maturity for corporate bonds

1. short term bonds, mature in 1-5 years
2. medium term bonds, mature in  5-12 years
3. long term bonds-mature in 12+ years

How often is interest normally paid on interest-bearing bonds?

• seminannually. Most interest bearing bonds pay interest semiannually except in a small number of cases. Occasionally they will pay annually, but very rarely. A type of bond that pays interest at maturity is a zero coupon bond.