FIN 2800 Chapter Notes - Chapter 6: Capital Market, Growth Capital, Corporate Bond
Document Summary
Corporate bond: a long term debt instrument indicating that a corporation has borrowed. Bond indenture: a legal document that specifies both the rights of the bondholders and the duties of the issuing corporation: borrower must: Pay taxes and other liabilities when due. Require a minimum level of liquidity to ensure against loan default. Prohibit the sale of accounts receivable to generate cash. (could cause a cash shortage) Constrain subsequent borrowing or additional borrowing may be subordinate to the original loan (subordination in a bond indenture, the stipulation that subsequent creditors agree to wait until all claims of the senior debt are satisfied) Call premium: the amount by which a bond"s call price exceeds its par value. Eurobond: a bond issued by an international borrower and sold to investors in countries with currencies other than the currency in which the bond is denominated.
