BUSI 2504 Lecture Notes - Unsecured Debt

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Interest rate risk: the risk arises for bond owners from fluctuating interest rates (market yields): the longer the time to maturity, the greater the interest rate risk, the lower the coupon rate, the greater the interest rate risks. Bondholders have legal recourse if interest or principal payments are missed. Excess debt can lead to financial distress & bankruptcy. Common shareholders note for the board of directors & other issues. Dividends are not considered a cost of doing business & are not tax deductible. Dividends are not a liability of the firm & shareholders. Indenture: written agreement between corporation & the lender"s detailing the term of the debt issue. Registered form: registrar of company records ownership of each bond; payment is made directly to the owner of records. Debt securities classified according to the collateral and mortgage used to protect the bondholders. Mortgage: secured by real property, normally rand or buildings.

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