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R39 FIXED-INCOME SECURITIES - DEFINING ELEMENTS - Coggle Diagram
R39
FIXED-INCOME SECURITIES - DEFINING ELEMENTS
Bond Indentures, Regulations, Taxation
Bond Indenture:
Bond issuer
Funding sources
Collaterals
Credit enhancements
Covenants
The
bond indenture
identifies the party that is obligated to make principal and interest payments by its
legal name
. (Nghĩa vụ trả nợ)
Credit enhancements:
A. Internal
Subordination
Overcollateralization
Cash reverse fund + excess spread amount
B. External
Bank guarantee
L/C
Surety bond
Covenants:
1. Negative covenants (không được làm)
Restriction on debt, prior claim, distribution pmt, asset disposal, risky investment, M&A
Negative pledge of collateral
2. Affirmative covenants (bắt buộc làm)
Timely payment
Comply with laws
Maintain current lines of business
Pay taxes
Insure + maintain assets
Where are bonds issued?
National Bond
Domestic
Foreign
Euro Bonds
Global bond = (mixture) Euro Bond + National Bond
Taxation
Coupon paid ≈
ORDINARY INCOME
Sell before maturity ≈
CAPITAL GAIN INCOME
=> Taxed less than
ORDINARY INCOME
Zero cp Bond is taxed as capital gain
Bond cash flows & Contingencies
Bond Cash flow
Principal pmt
Fully Amortized
Partially Amortized Bonds
Bullet point
normal coupon distribution
Sinking Fund Arrangements
Coupon pmt
Credit linked
Payment-in-Kind
Step up cp Bond
(Coupon tăng dần)
Bonds with step-up coupons offer bondholders some
protection against rising interest rates
.
Deferred cp bond
(coupon dồn, 1-2 năm ko có coupon, để 2-3 năm sau nhận)
Floating rate notes
Index-linked bond
Zero-coupon linked
3.
Interest-indexed
Capital-indexed
Index-annuity
Inflation-linked
(thay đổi principle, ko đổi coupon rate => tuy nhiên
coupon pmt có thay đổi
vì = coupon rate*principle mới)
Contingency:
A
contingency provision
allows for some action given the occurrence of a specified event in the future.
Callable
Call premium
Call schedule
Call price
American - European - Bermuda
Putable
Convertible
Conversion price
=
Price per share
that may be converted to common stock
Conversion value
Conversion ratio
= Par value / Conversion price
Contingent Convertible bond - CoCos
: are bonds with contingent write- down provisions
Anything bad for investors will cost more
Some definitions
Most common type: BOND
Features:
• Issuer
• Maturity date
• Principal
• Interest pmt (fixed amount), frequency
• Currency
• Market interest increase => value of bond decrease
Probability of default
Low credit quality ≈ High yield
Bond's rating decre ≈ Price decre ≈ Yield incre
Special terms:
• Plain vanilla ≈ Conventional bond ≈ Bond with fixed cp rate
• Pure discount bond ≈ Zero cp bond ≈ Bond with no cp rate
• Floating rate notes ≈ cp with floating rate
• Market reference rate (MRR) ≈ LIBOR