25300 Lecture Notes - Lecture 5: Zero-Coupon Bond, Electric Charge, Floating Charge
Is an amount of money borrowed today from a lender to be repaid in the future
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Is a contractual obligation (interest and principal repayments)
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Interest payments: business expense -> tax deductible
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Default is failure to meet the required payments when due
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Maturity: short or long-term debt
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Security: secured or unsecured
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Ranking: senior or subordinate
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Interest rate: fixed, variable or a combination
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Repayment pattern: interest only, principal and interest, capitalised interest
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Currency: AUD, foreign
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Source: markets or financial institutions
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Features of debt:
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Secured debt: specific charge over an asset, circulating asset (or floating charge)
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Loan agreements: positive and negative covenants
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Guarantees
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Ways lenders protect against loss:
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Debt
Securities with a term of less than one year
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Types: bills, promissory notes, overdrafts
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Source of short-term finance
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Must state: amount payable and date payable
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Only payment made at maturity
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Issued at a price less than their face value
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Interest is difference between security's price and face value
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Are discount instruments:
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Can be 'rolled over' at maturity
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Bills of Exchange:
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Accept the bill, pay the holder its face value at maturity
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Retire the bill once it has been paid
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Considered as a guarantor by lenders
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i.e. Comm bank
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Acceptor:
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Want the funds
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Issuer of the bill
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The drawer's liability is secondary to the acceptor
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Liability to repay the bill is the acceptor (the drawer repay the acceptor)
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Drawer:
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Buy the bill, provide cash to the drawer
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May sell the bill before maturity (must endorse it)
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Discounter:
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Parties to a Bill:
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Short-term debt
The borrower is the issuer or debtor
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The lender is creditor
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Companies or governments issue debt securities to the public - bonds
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fixed term,
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periodic fixed interest payments - coupons,
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Is an interest-only loan with:
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Bond:
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Long-term debt
Lec 5 Debt and Valuation
F Page 10
Document Summary
Is an amount of money borrowed today from a lender to be repaid in the future. Is a contractual obligation (interest and principal repayments) Default is failure to meet the required payments when due. Repayment pattern: interest only, principal and interest, capitalised interest. Secured debt: specific charge over an asset, circulating asset (or floating charge) Securities with a term of less than one year. Issued at a price less than their face value. Interest is difference between security"s price and face value. Accept the bill, pay the holder its face value at maturity. Retire the bill once it has been paid. Considered as a guarantor by lenders i. e. comm bank. The drawer"s liability is secondary to the acceptor. Liability to repay the bill is the acceptor (the drawer repay the acceptor) Buy the bill, provide cash to the drawer. May sell the bill before maturity (must endorse it) Companies or governments issue debt securities to the public - bonds.
