Senior Corporate Securities

1
Senior Corporate Securities

• Commercial Paper Market
• Medium-Term Note Market
• Bank Loan Market
• Bond Market
• Preferred Stock Market

2
Credit Risk

• Default Risk
• Risk that issuer will default on its obligation
  to the lender.
• Credit Spread Risk
• Risk that debt obligation will decline due to an
  increase in the credit spread.
• Downgrade Risk
• Risk that credit quality of issuer declines.

3
Medium-Term Notes (MTN)

• Corporate debt obligations offered on a
  continuous basis
• Characteristics
• offered continuously to investors
• rated by rating agencies
• maturities range from 9 months to 30 years
• registered with the SEC
• Typically issued by non-financial corporations

4
The Primary Market of MTNs

• Placement and Distribution
• sold on a best-efforts basis by an investment
  banker
• sold in small amounts

5
Structured MTNs

• Combine offering with positions in derivative
  markets to create debt obligations with more
  interesting risk/return features.
• Types
• inverse floating-rate security
• structured note

6
Bank Loans

• Domestic bank
• Subsidiary of foreign bank
• Foreign bank
• Subsidiary of domestic bank
• Offshore or Eurobank

7
Syndicated Bank Loans

• A group of banks provides funds to the borrower.
• Senior bank loans
• marketable
• collateralized
• based on LIBOR

8
Lease Financing

• Parties involved
• lessee
• lessor
• Leasing arrangements
• leveraged lease
• tax-oriented lease
• single-investor of direct lease

9
Basic Features of Corporate Bonds

• Indenture
• Maturity of Bonds
• Term bonds
• Notes
• Serial bonds
• Provisions for Paying Off Bonds
• Call Provision
• Sinking Fund Provision

• Security for Bonds
• Mortgage Bonds
• Collateral Trust Bonds
• Debenture
• Subordinated Debenture
• Guaranteed Bonds

10
Special Corporate Bond Features

• Convertible and Exchangeable Bonds
• Debt with Warrants
• Putable Bonds
• Zero-Coupon Bonds
• Floating-Rate Bonds

11
Corporate Bond Credit Ratings

• Investment-Grade Bonds
• Low credit risk
• Low yield
• Noninvestment-Grade Bonds or Junk Bonds
• High credit risk
• Speculative
• High yield

12
(No Transcript)
13
Secondary Corporate Bond Markets

• Exchange Market (NYSE and ASE)
• Over-The-Counter Market

14
Eurobond Market

• Underwritten by an international syndicate
• Offered simultaneously to investors in a number
  of different countries
• Issued outside the jurisdiction of any single
  country
• Issued in unregistered form

15
Preferred Stock

• Features
• Cumulative preferred stock
• Noncumulative preferred stock
• Special tax code provision
• Sinking fund provision

16
Types of Preferred Stock

• Perpetual preferred stock
• Fixed-rate preferred stock
• Adjustable-rate preferred stock
• Auction preferred stock
• Remarketed preferred stock