corporate claims


  • firm value = liabilities + equity 
  • claims on firm ( liabilities+ equity) : capital structure 
  • financial claims 
  • debt liabilities 
  • equity 
  • non financial claims 
  • other liabilites 
  • liabilities have higher priority over equity 
  • debt is cheaper than equity 
  • corporate claims 
  • cash flow rights of claim owners 
    • describes how firm-generated cash will be allocated to claims 
  • liabilities have higher claim priority over equity 
  • control rights of creditors 
    • force the firm into bankruptcy if firm doesn't pay obligations 
  • covenants ( positive or negative)
  • control rights of stockholders 
  • vote new board of directors to replace old board 
  • board of directors appoints managment team 
  • corporate claims 
  • financial claims - debt 
    • straight - pays interest regularly and principal at maturity 
    • convertible - right to exchange bonds for a number of shares 
    • covenant - conditions of performance or restrictions of actions seniority - priority ranking in cash/ asset distribution at liquidation
    • collateral - pledge to specific loan in case of default 
    • putable - right of bonds older to sell bond back to issuer at a pre-determined price 
    • callable 
    • right of issuer to retire bonds before maturity at pre-determined price 
    • sinking fund - requires issuer to repurchase pre-determined portions of bond prior to maturity 
  • Maturity 
    • short term: commercial papaer 
    • long term : 30 year loan 
    • sensitivity measure of bond price change due to change in market yield 
    • derivative = dp/dy 
    • duration 
    • convexity: s2p/ dy^2 
    • coupon - contract interest rate in bond agreement; typical pays interest twice a year 
    • zero-coupon 
    • equity 
    • warrants and options 
    • options- have the right to excercise the right to buy for the future 

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