FINA 475 Lecture Notes - Lecture 7: High-Yield Debt, Unsecured Debt, Capital Structure
24 Oct 2017
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Issuers of corporate debt obligations are categorized into three sectors. Utilities: involved in generation/distribution of electric, gas, and water. Financials: bonds of a wide range of institutions. Capital structure of the firm is how the firm finances itself. The issue is whether the structure is optimal by describing seniority structure. Senior secured debt: backed by secure collateral beyond issuer"s credit standing. Either real property (using a mortgage) or personal property may be pledged. A mortgage bond grants the creditor a lien against the pledge assets. Creditor has legal right to sell the property to satisfy unpaid obligations. Foreclosure and sale of mortgaged property is unusual in practice. To satisfy the desires of bondholders for security, they will pledge stocks, notes, bonds, or other obligations. Bonds secured by these assets are called collateral trust bonds. Senior unsecured debt is debt that is not secured by a pledge of property.
