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Corporate Financing with Bonds: Understanding Debt, Risks, and Market Dynamics

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This overview delves into corporate financing through bonds, detailing their characteristics, including face value, interest rates, and maturity dates. Unlike stocks, bonds represent debt without ownership rights, making them a crucial component of capital structure. The discussion covers bond sales, market valuations, and risks such as defaults. It also highlights the importance of bond ratings, which assess the creditworthiness of issuers. Special municipal bonds offer tax benefits, providing insights into their significance. Understanding these elements is essential for effective investment in bonds.

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Corporate Financing with Bonds: Understanding Debt, Risks, and Market Dynamics

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Presentation Transcript

  1. Corporate Financing Using Bonds Statistics & Risk Management

  2. Why Bonds? Issuing bonds do not convey ownership. Considered debt only.

  3. Bond Sales • Bond have a face value. • Discounts • Premiums • Interest Rates • Maturity Dates • Bonds can be sold and resold at market value.

  4. Defaults Interest payments and bond pay off have been put in default. Bond Holders get available funds before stock holders do. What happened to General Motors Bonds/Stocks?

  5. Bonds Ratings Through the years, businesses have been established who rate the risk of bonds being issued. Base Ratings the bond is evaluated Insured Ratings is when the bond is insured and the rating only applies to the insurer. Be careful you understand what the rating is really evaluating when you buy a bond.

  6. Special Bonds Some special bodies and agencies can issue Municipal Bonds that pay interest that is non taxable (Federal Income tax) to the bond holder. What do you think is the reason for this?

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