I-Defining Elements-4

Question 1

5 Features of a Bond

解释trustee

Answer 1

1. Issuer
2. Maturity
3. Par Value
4. Coupon Rate and Frequency
5. Currency Denomination
   trustee: appointed by issuer, 债券发行中介。responsibility: 确保timely payment to bondholders

代bondholders持有indenture

Question 2

【features of bond】名词解释

1. tenor
2. plain vanilla bond
3. floating rate notes (FRN)
4. dual-currency bonds
5. currency option bonds
6. current yield

Answer 2

1. remaining time till maturity
2. conventional bond: fixed rate
3. a reference rat+basis points (bps), 6月libor决定12月interest rate
4. coupon payment用一种货币, principal另一种
5. 允许bondholder在coupon payment & principal均可从两种货币中选一种支付
6. current yield=coupon payment/current price ($60/$1020)

Question 3

bond indenture: 投资者着重考察5方面

Answer 3

1. legal identity, legal form
2. source of repayment
3. asset or collateral backing
4. credit enhancement
5. covenants

Question 4

【legal identity】

解释bankruptcy remoteness

Answer 4

1. ABS中设立的SPV
2. 实质sponsor已经将资产打包出售给SPV，所有权转移
3. sponsor面临破产清算时，SPV继续支付的能力不受影响

Question 5

【collateral backing】解释

1. secured bonds/ unsecured bonds 2
2. debentures
3. collateral trust bonds/
4. equipment trust bonds/2
5. covered bonds
6. senior debt/junoir (subordinated) debt

Answer 5

1. secured: backed by 资产抵押。unsecured: no collateral. 破产时对unsecured支付在后
2. can be secured or unsecured. mostly unsecured
3. 以金融资产(common shares…)作为抵押
4. 以实物资产作为抵押。多出现在融资租赁
5. backed by a “cover pool”。类似ABS，但资产与sponsor不剥离，要连带清算，yield 更低
6. 破产时偿还优先顺序：senior-junior

Question 6

【credit enhancements】

1. often used in
2. types of enhancements

Answer 6

in ABS

1. Internal:

Subordination/tranching/waterfall structure确定claim的优先级别

overcollaterization,

reserve accounts (excess spread): 中介通过息差产生的收益放入reserve account以备credit risk

external:

surety bonds (insurance company),

bank guarantees,

letter of credit

cash collateral account 从银行直接把guarantee借出来投资短期货币工具，avoid third-party risk

Question 7

【covenants】解释

1. negative pledges
2. restrictions on prior claims
3. 比较affirmative/negative的cost

Answer 7

1. 必须把我的债券列为最优先级别，不能发行更高级别
2. protect unsecured bondholders: 不允许债务人将未抵押的资产进行抵押
3. affirmative covenants比较好达到，cost低。negative covenants cause extra cost to issuers.

Question 8

【legal and regulatory considerations】

债券分类

Answer 8

Question 9

【legal and regulatory considerations】

1. Eurobonds 发行
2. Eurobonds 考虑
3. bearer bonds/ registered bonds
4. global bonds

Answer 9

1. underwritten by international syndicate-group of international financial insitutions from different jurisdictions
2. bypass legal and regulatory constrains, particularly in US
3. bearer bonds:不登记持有者名字多为Eurobonds,。registered登记持有者，多为domestic/foreign bonds
4. issued simultaneously in Eurobond market and at least one domestic bond market

Question 10

【tax considerations】

3方面问题

Answer 10

1. municipal bonds可免除州和联邦income tax
2. capital gains: short-term tax rate约等于income tax rate, long-term 更低
3. issued at discount: 如同财务，以每年实际利息收入（大于coupon payment）作为计税基础，如zero coupon bond, 每年仍有利息收入并纳税，maturity时不用再缴capital gain tax

Question 11

【principal repayment structures】

1. plain-vanilla
2. amortizing/partially amortizing
3. singking fund 3

Answer 11

1. bullet payments
2. partially: ballon payments

3.

1. 约定每年额外赎回5%本金
2. increasing amount of redeeming
3. call provision公司在一定价格或利率下可以选择赎回

Question 12

sinking fund arrangement:

1. 优点1
2. 缺点2

Answer 12

1. reduce credit risk

2.

1. reinvestment risk:利率低时被赎回了，投资人拿着现金找不到回报率更高的机会
2. 有option时issuer低于市场价赎回，投资人蒙受损失

Question 13

【coupon payment structures】

1. floating rate - variable rate/floor, cap, collared/ reverse(inverse)
2. step-up coupon+特点
3. credit-linked
4. payment-in-kind
5. deffered coupon
6. index-linked

Answer 13

1. 一个reference 如Libor+若干basic poionts bps.
   floor: float下限，cap：float上限。collared：既有上限又有下限
2. coupon rate随时间逐渐上升。特点：通常投资人认issuer会提前赎回，避免更多coupon payment
3. coupon rate随issuer credit rating变化而变化
4. instead of pay in cash, pay additional bond
5. (split coupon) 前若干年不付息，后若干年higher coupon
6. 可以coupon-link也可以principal-linked

Question 14

Index-linked bonds

1. zero-coupon-indexed bonds
2. interest-indexed bonds
3. capital-indexed bonds

Answer 14

1. 零息债券：只能本金index
2. 仅coupon indexed
3. 仅本金indexed，fixed coupon rate,故实际上coupon payment也变化

Question 15

【embeded options】callable bonds

1. protects what?
2. call premium
3. call protection period
4. call date/first par call date
5. risk to investors

Answer 15

1. protects issuers agains decline in interest rates
2. the amount paid over par
3. 发行后一段时间内不允许call
4. call date: first date that a bond can be called.

first par call date: first day that the bond is called at par

5. reinvestment risk

Question 16

【embeded options】callable bonds

1. make-whole calls
2. American-style call
3. European-style call
4. Bermuda-style call

Answer 16

1. 按未来现金流现值（即市场价）call. 一般使用的折现率较低，redeem时对bondholder有利
2. call a bond any time after first call date
3. call a bond only once at call date
4. call a bond on specified dates following the protection period

Question 17

【embeded options】putable bonds

1. protect what?
2. one-time put bonds
3. multiple put bonds
4. 价格一般偏？yield一般偏？

Answer 17

1. protect bondholders from interest rate rise
2. 只有一次sellback opportunity，like European style
3. multiple opportunities to sellback
4. 价格偏高，yield偏低

Question 18

【embeded options】convertible bonds

1. conversion price
2. conversion ratio
3. conversion value
4. parity/ above parity/ below parity

Answer 18

1. 行权价格
2. number of shares can be converted to. par value/conversion price
3. current share price X conversion ratio
4. conversion value=bond price, parity

conversion value>bond price, above parity (行权)

conversion value<bond>
</bond>

Question 19

【embeded options】convertible bonds

对发行者的好处2

Answer 19

1. reduced interest expense (因为yield较低)
2. 如果行权，则发行人债务减少

1.

Question 20

【embeded options】

1. warrant
2. contingenct convertible bonds

Answer 20

1. not “embeded”, but “attached” 可转债中的期权不可剥离，warrant可以独立行使，行权后bond仍在
2. 有关银行cor tier 1 capital ratio,低过一定限度后自动convert, 债券转股权。