FIN 4243 Lecture Notes - Lecture 12: Unsecured Debt, Debenture, United States Treasury Security
Document Summary
> free of default risk (assumption at least) Issuing firms pay to have their bonds rated. > not a recommendation to sell or buy. Ratings by the major agencies have closely followed historical default rates, until the recent financial crises. > the highest ratings categories have the smallest frequency of default and vice versa. The risk structure of interest rates captures the relation among the yields on different bond grades that have the same term to maturity. > yield spread is a measure of the default premium. > strategic direction, financial philosophy, conservatism, track record, succession planning, control systems. > industry trends, the regulatory environment, basic operating & competitive position, financial position & sources of liquidity, company structure, parent company support agreements, special event risk. A (cid:271)ond (cid:449)ill tend to ha(cid:448)e a higher rating if . > the firm has lower debt ratios (debt/assets, debt/equity) > the firm has higher interest coverage ratios (earnings before interest and taxes/interest)