ch 8

Card Set Information

ch 8
2014-03-06 01:41:13

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  1. Term loan
    A loan typically issued by a bank that has a maturity of one to ten years
  2. Bond
    A form of long-term financing whereby an issuer receives cash from a lender (an investor), and in return issues a promissory note (a "bond") agreeing to make principal or interest payments on specific dates
  3. Sinking Fund
    A fund into which monies are set aside each year to ensure that a bond can be liquidated at maturity
  4. Hedging
    The art of offsetting high variable rate debt payments with returns from high-rate investments
  5. Interest Rate Swaps
    Hospital borrower exchanges or swaps interest rates (fixed to variable rate or variable to fixed rate) between another party, typically a bank or investment banking firm, with the intent of securing a more favorable rate
  6. Collateral
    An asset with clear value (such as land and buildings) that is pledged against a loan to reduce risk to the lender. If the loan is not paid off satisfactorily, the lender has a legal claim to seize the pledged asset
  7. Negative pledge
    Prohibits the health care provider from giving a lien (claim) on its real estate to any other creditor
  8. Feasibility Study
    A preliminary study undertaken by an organization and complied by a third party to determine and document a project's financial viability.
  9. Debt Capacity
    The amount of total debt that an organization can be reasonably expected to take on and pay off in a timely manner
  10. Trustee
    An agent for bondholders who ensures that the health care facility is making timely principal and interest payments to the bondholders and complies with legal covenants of the bond
  11. Bond insurance
    By purchasing bond insurance, which protects against default, a hospital borrower can lower its cost of debt and improve the bond's marketability
  12. Outstanding bond issue
    A bond that trades in the marketplace
  13. Net proceeds from a bond issuance
    Gross proceeds less the underwriter's and others' issuance fees
  14. POS
    A preliminary official statement offered to prospective buyers of a bond by the underwriters to help determine a fair market price for the bond
  15. Lessor
    An entity who owns an asset that is then leased out
  16. Lessee
    An entity who negotiates the use of another's asset via a lease
  17. Operating lease
    A lease that lasts shorter than the useful life of the leased asset, typically one year or less. This type arrangement can be canceled at any time without penalty, but there is no option to purchase the asset once the lease has expired
  18. Capital lease
    A lease that lasts for an extended period, up to the life of the leased asset. This type cannot be canceled without penalty, and at the end of the lease period, the lessee may have the option to purchase the asset. ALSO called a financial lease
  19. Sale and Leaseback arrangement
    A type of capital lease whereby an institution sells an owned asset and then simultaneously leases it back from the purchaser. The selling institution retains rights to use the asset but benefits from the immediate acquisition of cash from the sale
  20. Tax shield
    An investment for a for-profit entity that reduces the amount of income tax to be paid, often because interest and depreciation expenses are tax deductible
  21. Amortization
    The gradual process of paying off debt through a series of equal periodic payments
  22. Discount
    When the market rate is higher than the coupon rate, a bond is said to be selling at a discount from its par value
  23. Fixed income security
    A bond that pays fixed amount of interest at regular periodic intervals, usually semiannually
  24. Letter of credit
    Offered through a bank, this can be used to enhance the creditworthiness of an institution and hence a bond's rating
  25. Market value
    What a bond would sell for in today's open market
  26. Par value
    The face value amount of a bond; it is the amount the bondholder is paid at maturity, and it does not include any coupon payments
  27. Premium
    When the market rate is lower than the coupon rate, a bond is said to be selling at premium
  28. Required market rate
    The market interest rate on similar-risk bonds
  29. Yield to maturity
    The rate at which the market value of a bond is equal to the bond's present value of future coupon payments plus
  30. Rating of bond
    Ratings assess the organization's creditworthiness or the likelihood of default of a bond. Higher rating, the lower the interest rate