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2010-06-08 15:50:04

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  1. What is a plain vanilla bond
    One with a fixed interest rate
  2. What is a zero coupon bond?
    One with no interest rate that is instead issued at a discount
  3. What is a convertible bond?
    One with an option to hand back in exchange for shares
  4. What is an exchangeable bond?
    Once which can be exchanged for shares in another company other than the issuer
  5. What is a bond with a warrant
    In addition to a coupon there is a seaprate security attached to the bond called a warrant, this gives the option to buy shares in the issuer at a fixed price. Warrants can be bought and sold separately from the bond
  6. What is commercial paper
    Short term debt certificate (less than a year), usually unlisted, tend to be issued at a discount rather than with coupons
  7. What is a global bond?
    Total debt obligation of the issuer starts life as a single wordprocessed document - a global note instead of being divided into certificates, it represents all the bonds to be offered. A temporary global note allows the issue to close and be placed in a clearing system before the final certificates are ready
  8. Are bonds generally more tradeable than loans?

    This is because they are in smaller denominations
  9. Does the term syndication apply to both loans and bonds?
    Yes but it means slightly different things

    In a loan each bank is liable for just its own commitment; with a bond issue the liability is joint and several
  10. Is a credit rating necessary for a loan and/or a bond issue?
    Only necessary for a bond issue

    Vital in a bond issue. Lending banks however do their own due diligence
  11. How long is a medium-term note usually issued for?
    About 2-5 yrs
  12. How long is a long bond issued for?
    About 7 yrs
  13. When interest rates go up, what happens in respect of a fixed income bond? What doesn't change
    • 1. The MARKET VALUE goes DOWN - this is becasue the rate of interest the bond is paying is now less attracctive
    • 2. The YIELD goes UP - until the point at which the interest paid is the same as prevailing interest rates.

    The PAR (nominal) value will NEVER CHANGE over the life of the bond
  14. Is the issuing of bonds primary or secondary market activity?
  15. Is the trading of bonds once they are in issue primary or secondary market activity
  16. Give 2 reasons why the terms of a bond issue tend to be less onerous than the equivalent terms of a loan agreement
    • 1. It is harder for bond issuer to obtain waivers from bond holders since it doesn't know who they are
    • 2. It is easier for bond holders to exit their positions than lenders, simply by selling their bonds in the secondary market
  17. Name 3 types of tradeable securities that contain an equity option
    • 1. Convertible bond - equity can br subscribed for at a fixed price
    • 2. Warrant - holder can exchange bond in exchange for equity in the issuers
    • 3. Exchangeable bond - like a concertible bond but exchangeable for shares in a company other than the issuer
  18. Name two types of note or bond that do not have a coupon? What makes up for the lack of interest?
    • 1. Zero
    • 2. Commercial paper

    They are issued at a discount
  19. Most negative pledge clauses bar the issuer from making subsequent issuers that rank in priority.

    True or False?

    They don't impose an absolute bar to the subsequent issue of debt securities but they do prevent the issuer from making a later issue that ranks ahead of the one containing the negative pledge
  20. Name one advantage of a bond issue rather than a loan to the issuer and to the investor
    • 1. For the issuer: Cheaper and diversified source of funding due to an extensive investor base
    • 2. For the investor: broad range of products and credit profiles in a liquid market
  21. How long is commercial paper usually issued for? What do many major corporations use commercial paper for? How is it marketed and sold? Is it usually listed? Is it usually secured? Does it usually contain investor protection provisions?
    365 days

    Form of working capital

    On basis of issuer's name and rating

    Not usually listed. Not usually secured. Does not usually contain investor protection provisions
  22. How long can a bond be issued for? Do they contain investor protection provisions?
    Anything from one year to 50. Usually between 2-10 yrs.

    They usually do, the terms will vary but normally contain a negative pledge and a series of events of default
  23. Do bonds and notes mean the same thing?
    Essentially yes
  24. What is a medium term note? Are they popular?
    Issued under a programme platform. Slightly longer than commercial paper.

    Now the most popular form of bond
  25. What is a bearer instrument?
    What is a registered intrsument
    • - Where ownership passes by physical delivery
    • - Where ownership passes by transfer being recorded in a register
  26. What is a programme platform?
    Uncommitted facility, the documents contain no termination date, suitable for regular issuers because of the cost and time saving advantages
  27. For plain vanilla debt issues are stand-alone issues or programme platforms more usual?
    Programme platforms
  28. Are programme platforms suitable for complex/intensely negotiated products such as concertible, exchangeable or high yield bonds?
    No. You need to use a stand-alone bond for these
  29. What is a take-down?
    The procedure for issuing notes under a programme
  30. Where will the procedure for an issue of notes under a programme be found?
    Programme documents
  31. Do plain vanilla notes usually use a trustee or a fiscal agent structure?
    A fiscal agent structure is more common
  32. Do highly structured or secured issues usually use a trustee or a fiscal agent structure?
    They always use a trustee structure
  33. Do commercial paper programmes use a trustee or a fiscal agent strucutre?
    Fiscal agent
  34. What is the fundamental difference between a trustee and a fiscal agent structure?
    The trustee is the representative of the noteholders whereas the fiscal agent is the representative of the issuer.

    Where a fiscal agent structure is used noteholders may exercise their rights as creditors individually, where there is a trustee the trustee conducts proceedings on their collective behalf
  35. Why are bonds listed?
    Usually because institutional investors are subject to requirements that a minimum percentage of debt instruments held by them as assets are listed - this is because listed notes must satisfy certain admissibility criteria.

    Also, in some jurisdictions, issuers of listed notes may benefit from certain tax exemptions
  36. Name two european jurisdictions which permit the listing of bonds under a reduced disclosure regime
    London and Luxembourg: notes are only to be sold on to professional investors and fall within an exemption so as not to constitute an offer to the public
  37. Are issues of commercial paper usually listed?
  38. Give 3 reasons why global notes are used
    • 1. To save costs involving printing individual certificates
    • 2. To help ensure compliance with US securities law
    • 3. To facilitate trading of the notes between investors
  39. Who will want to conduct due dilligence on a debt security issue?
    The arrangers and the underwriters
  40. How can the complex provisions of the US securities act be avoided?
    By being issued and offered in complaince with regulation S of the US securities act. They therefore fall under a safe harbour provision
  41. Why might a company need to comply with the US securities act?
    Because they want to issue securities in the US to access a wider market: you need to comply with Rule 144A.

    This will be limited to very large issues ("global" bonds) where US investor participation is a key factor. There will be a substantially increased cost in complying with this act.
  42. In a bond issue, who are warranties give by and to and why are they given?
    They are given by the issuer to the managers.

    Managers will want this protection from the period from which they first become liable under the subscription agreement to when they have sold on their proportion of bonds to the investors