Minicase Raines and Warren Finance Essay Example for Free

Minicase Raines and Warren Finance EssayThe damage of using confederacy collateral to back the adhesions is, the asset used as collateral cannot be sold during the term of the bond and must maintain its value. 2. Seniority of the bond. The seniority of the bond is the order in which bonds leave alone be nonrecreational in the event of bankruptcy. The more senior the bond, the higher priority of being paid if there is a bankruptcy, and the lower the coupon estimate because the risk to the bond owner is lower. 3. The presence of a sinking fund. A sinking fund is an account set up by the trustee of the bonds.The trustee saves and pools money to purchase, repair off, or holler out bonds early. Setting up a sinking fund will lower the risk, indeed lowering the coupon tell. The risk to the company is not having available funds to feed the trust. 4. A blazon out provision with specified inspect dates and call prices. A call provision could be included to call the bonds if interest order drop substantially. The call provision will raises the coupon rate but encourage you from paying a high rate for a long period in the event rates drop. 5. A deferred call accompanying the call provision.A deferred call accompanying the call provision would offend the bond purchaser a protection period where the bond could not be called. Adding this provision will prohibit you from calling the bond for a set time (call period), and puts you at risk of paying a high interest rate for the deferred period. Therefore, you have a lower coupon rate than a call provision with no deferral period but still higher than a bond with no call provision at all. 6. A make-whole call provision. A make-whole call provision is the safest call for the investor and a lower coupon rate for you.The discount rate is based on the current Treasury rate plus a small-specified percentage. The investor is protected by being made whole if there is a call. 7. every positive covenants for purchase r and some SS might consider. Positive covenants on bonds atomic number 18 proactive and reduce the coupon rate. Applying positive covenants to the bond makes it more attractive and secure to the investor by applying assigns that protect the investors interest. You may wish well to consider a covenant to furnish your audited financial statements to the investors.This is something you already do and it would decrease the coupon rate. If you charter to secure with assets (see number 1), including a covenant to assure that the asset is in good working condition would lower the coupon rate. 8. Any negative covenants for purchaser and some SS might consider. Negative covenants on bonds are restrictive and reduce the coupon rate. Applying negative covenants to the bond makes it more attractive to the investor but may forget the operation by putting limitations on your business actions.You may want to consider a clause that you will not merge with another firm and that you will not i ssue any spare long-term debt. 9. A renascence feature. A conversion feature allows a bond to convert to parenthood and unless your company is planning to go public, this would not apply to you. If SS has any plans to go public, you should consider a conversion feature. This feature would benefit the bondholders if the company did go public and if included could lower the coupon rate. 10. A floating-rate coupon.A floating-rate coupon is much like an adjustable rate loan. The coupon rate, tied to a published rate such as the Treasury bill interest rate over a set period, is alter per a set schedule such as every six months. There is a disadvantage of doing this when rates are low but will be more attractive to the investor, thus a lower margin. A cap on how much the rate can be increased or decreased would be a good addition if you shoot this option. This would be a consideration if you choose not to have a call provision.