Chapter 11 - Sources of long-term finance: Debt. In this chapter, you will learn: Explain the general characteristics of long-term debt, identify and explain the features of the main types of long-term loans, identify and explain the features of the main types of marketable long-term debt securities,. | Chapter 11 Sources of Long-Term Finance: Debt 2 2 2 2 2 2 2 2 2 Learning Objectives Explain the general characteristics of long-term debt. Identify and explain the features of the main types of long-term loans. Identify and explain the features of the main types of marketable long-term debt securities. 2 2 2 2 2 2 2 2 2 Learning Objectives (cont.) Identify and explain the main features of project finance. Understand the role of interest rate swaps in managing debt. Identify and explain the features of securities that have the characteristics of both debt and equity. 3 3 Introduction ‘Long-term debt’ is debt with a term to maturity greater than 12 months. Long-term debt typically comprises more than half of the total debt of listed Australian companies. Two broad types of long-term debt: Loans from banks and other financial intermediaries. Funds raised by issuing marketable debt securities such as corporate bonds. 4 4 General Characteristics of Long-Term Debt Debt — contract | Chapter 11 Sources of Long-Term Finance: Debt 2 2 2 2 2 2 2 2 2 Learning Objectives Explain the general characteristics of long-term debt. Identify and explain the features of the main types of long-term loans. Identify and explain the features of the main types of marketable long-term debt securities. 2 2 2 2 2 2 2 2 2 Learning Objectives (cont.) Identify and explain the main features of project finance. Understand the role of interest rate swaps in managing debt. Identify and explain the features of securities that have the characteristics of both debt and equity. 3 3 Introduction ‘Long-term debt’ is debt with a term to maturity greater than 12 months. Long-term debt typically comprises more than half of the total debt of listed Australian companies. Two broad types of long-term debt: Loans from banks and other financial intermediaries. Funds raised by issuing marketable debt securities such as corporate bonds. 4 4 General Characteristics of Long-Term Debt Debt — contract where borrower promises to pay future cash flows to lender. Debt contract specifies the size and timing of interest payments and how they are calculated. May specify if there are assets pledged as security, if debt is transferable, any other restrictions on and rights of the parties. 5 5 5 5 5 5 5 5 5 General Characteristics of Long-Term Debt (cont.) Secured Lender has claims against the borrower and against assets of the borrower. Unsecured Lender has a claim against the borrower, but no claim to any particular property owned by the borrower. 5 5 5 5 5 5 5 5 5 General Characteristics of Long-Term Debt (cont.) Marketable Securities such as notes, bonds or debentures that are issued direct to investors and can then be traded in a secondary market. Non-marketable Loans arranged privately between two parties. 5 5 5 5 5 5 5 5 5 Interest cost of debt Fixed versus variable — if variable, typically some benchmark rate (cash rate) plus a premium dependant on risk of borrower. Higher for .
