tailieunhanh - Brealey−Meyers: Principles of Corporate Finance, 7th Edition - Chapter 25

CHAPTER TWENTY-FIVE THE MANY DIFFERENT KINDS OF DEBT In chapters 17 and 18 we discussed how much a company should borrow. But companies also need to think about what type of debt to issue. They must decide whether to issue short or long-term debt, whether to issue straight bonds | Brealey-Meyers VII. Debt Financing 25. The Many Different The McGraw-Hill Principles of Corporate Finance Seventh Edition Kinds of Debt Companies 2003 CHAPTER TWENTY-FIVE Brealey-Meyers Principles of Corporate Finance Seventh Edition VII. Debt Financing 25. The Many Different Kinds of Debt The McGraw-Hill Companies 2003 IN CHAPTERS 17 and 18 we discussed how much a company should borrow. But companies also need to think about what type of debt to issue. They must decide whether to issue short- or long-term debt whether to issue straight bonds or convertible bonds whether to issue in the United States or in the international debt market and whether to sell the debt publicly or place it privately with a few large investors. As a financial manager you need to choose the type of debt that makes sense for your company. For example foreign currency debt may be best suited for firms with a substantial overseas business. Short-term debt is generally used when the firm has only a temporary need for Sometimes competition between lenders opens a window of opportunity in a particular sector of the debt market. The effect may be only a few basis-points reduction in yield but on a large issue that can translate into savings of several million dollars. Remember the saying A million dollars here and a million there pretty soon it begins to add up to real money. 2 Our focus in this chapter is on straight long-term We begin our discussion by looking at the different types of bonds. We examine the differences between senior and junior bonds and between secured and unsecured bonds. Then we describe how bonds may be repaid by means of a sinking fund and how the borrower or the lender may have an option for early repayment. We also look at some of the restrictive provisions that deter the company from taking actions that would damage the bonds value. We not only describe the different features of corporate debt but also try to explain why sinking funds repayment options .