FINA 475 Lecture Notes - Lecture 8: Reference Rate, Syndicated Loan, Yield Spread
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25 Oct 2017
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In a leverage buyout (lbo) or a recapitalization, the heavy interest payment burden places severe cash flow constraints on the firm. To reduce this burden, firms in lbos and recapitalizations have issued bonds with deferred coupon structures that permit the issuer to avoid using cash to make interest payments for 3 to 7 years. There are 3 types of deferred coupon structures: In addition to the agreed upon price, buyer pays the seller accrued interest. Introduction of a mandatory reporting of over the counter secondary market transactions for corporate bonds that meet criteria. Historically, trading is done via telephone and based on broker-dealer trading desks. Bond markets are less efficient than stock markets. Privately placed exempt from sec registration because do not involve public offering. Rule 144a: sec allows trading of privately placed securities among qualified institutional buyers. Not all private placements are rule 144a placement. Commercial paper is a short term unsecured promissory note.