Banking Chapter 24 Debt Financing Outline The Following Outline Correlated The Powerpoint

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Chapter 24

Debt Financing

I. Chapter Outline

The following chapter outline is correlated to the PowerPoint Lecture Slides. The PowerPoint slides

are referenced in bold. Alternative Examples to selected textbook examples are also available in the

PowerPoint Lecture Slides and are also referenced in bold.

24.1 Corporate Debt (Slide 6)

• Table 24.1 New Debt Issued as Part of the Hertz LBO (Slide 7)

• Public Debt (Slides 8–11)

– The Prospectus (Slide 8)

• Figure 24.1 Front Cover of the Offering Memorandum of the Hertz Junk Bond Issue

(Slide 9)

– Bearer Bonds and Registered Bonds (Slides 12–13)

– Types of Corporate Debt (Slides 14–21)

• Table 24.2 Types of Corporate Debt (Slide 19)

– Private Placements (Slide 29)

24.2 Other Types of Debt (Slide 30)

• Sovereign Debt (Slides 31–34, 39–42)

• Table 24.4 Existing U.S. Treasury Securities (Slide 33)

• Example 24.1 Coupon Payments on Inflation-Indexed Bonds (Slides 35–36)

24.4 Repayment Provisions (Slides 54–55)

• Call Provisions (Slides 56–64)

• Figure 24.2 Prices of Callable and Non-Callable Bonds on the Call Date (Slide 60)

Berk/DeMarzo • Corporate Finance, Fourth Edition, Global Edition 103

• Sinking Funds (Slides 70–72)

II. Learning Objectives

24-1 Identify typical sources of debt for corporations.

24-3 Define the following terms: notes, debentures, mortgage bonds, and asset-backed bonds.

Identify which of these are secured and which are senior.

24-5 Define term loan and private placement, and contrast the two forms of private debt.

24-7 Identify the characteristics of municipal bonds.

24-9 Define the following bond terminology: covenants, call provision, callable bond, yield to call,

sinking fund, and convertible bonds.

III. Chapter Overview

The chapter covers corporate as well as government debt instruments. The example of Hertz’s LBO

illustrates how corporations use debt markets to raise capital. The chapter defines bond terminology.

24.1 Corporate Debt

In 2005, Hertz was bought out by CDR in an LBO. Table 24.1 shows the debt portion of the deal.

Table 24.3 shows the details of Hertz’s junk bond issues. One of those issues is a euro-

24.2 Other Types of Debt

Sovereign debt is introduced first, with a focus on the four types of U.S. Treasury securities. Example

24.1 shows the computation of the coupon on a Treasury Inflation-Protected Security (TIPS). The

24.3 Bond Covenants

This section gives a description of bond covenants, including those of Hertz’s junk bond issue. Those

104 Berk/DeMarzo • Corporate Finance, Fourth Edition, Global Edition

requirement to repurchase the bonds at 101% of face value if there is a change in control. The authors

also mention the benefit of bond covenants for equity holders.

24.4 Repayment Provisions

This section discusses call provisions, sinking funds, and convertible provisions. Figure 24.3

IV. Spreadsheet Solutions in Excel

The following Problems for Chapter 24 have spreadsheet versions of the problems available: 11, 12,

and 14.