Minicase Raines and Warren Finance Essay Example for Free

Minicase Raines and Warren Finance EssayThe disadvantage of using company collateral to back the bonds is, the asset used as collateral lotnot 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 will be paid in the incident of bankruptcy. The more senior the bond, the higher priority of being paid if there is a bankruptcy, and the lower the coupon rate because the risk to the bond owner is lower. 3. The comportment 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, pay off, or war cry bonds early. Setting up a sinking fund will lower the risk, thus lowering the coupon rate. The risk to the company is not having available property to feed the trust. 4. A distinguish provision with specified call dates and call prices. A call provision could be included to call the bonds if interest pass judgment drop sub stantially. The call provision will raises the coupon rate but protect you from paying a high rate for a long end in the event rates drop. 5. A deferred call accompanying the call provision.A deferred call accompanying the call provision would give the bond emptor 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 live 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. Any positive covenants for purchaser and some SS might consider. Posit ive covenants on bonds argon proactive and garnish the coupon rate. Applying positive covenants to the bond makes it more attractive and secure to the investor by applying conditions that protect the investors interest. You may wish 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 choose 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 be restrictive and reduce the coupon rate. Applying negative covenants to the bond makes it more attractive to the investor but may hinder the operation by putting limitations on your business actions.You may require to consider a clause that you will not merge with another firm and that you will not issue any additional long-term debt. 9. A conversi on feature. A conversion feature allows a bond to convert to stock 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 all overmuch 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 adjusted 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 choose this option. This would be a consideration if you choose not to have a call provision.