MGTA05H3 Lecture Notes - Lecture 5: Foreign Exchange Risk, Debenture
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MGTA05H3 Full Course Notes
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Document Summary
A bond or debenture is evidence of a loan. The corporation agrees to pay back the loan at some time, with interest. Risk the bond will not be saleable. Security assets are given as collateral for the loan. If the loan is not repaid, the creditor can seize the collateral and sell it. Guarantee someone else agrees to pay the debt if the original debtor cannot pay. No interest is payable and dividends are discretionary, so no requirement to make any payments. Balance sheet improves with issue of equity financing, so you may be able to borrow more for the short term. Dividends are paid only from profits, so any claim is secondary to bond claims. Banks often put restrictions on the business, and monitor the balance sheet.
