Long-TermFinancing:AnIntroductionChapter15Copyright?2010bytheMcGraw-HillCompanies,Inc.Allrightsreserved.McGraw-Hill/Irwin
KeyConceptsandSkillsDescribethebasicfeaturesofcommonandpreferredstock.Understandthedifferenttypesofbondsandhowbondcharacteristicsimpacttherequiredyield.
ChapterOutline15.1SomeFeaturesofCommonandPreferredStock15.2CorporateLong-TermDebt15.3SomeDifferentTypesofBonds15.4Long-TermSyndicatedBankLoans15.5InternationalBonds15.6PatternsofFinancing15.7RecentTrendsinCapitalStructure
FeaturesofCommonStockVotingrights(Cumulativevs.Straight)ProxyvotingClassesofstockOtherrightsShareproportionallyindeclareddividendsShareproportionallyinremainingassetsduringliquidationPreemptiveright–firstshotatnewstockissuetomaintainproportionalownershipifdesired
FeaturesofPreferredStockDividendsStateddividendmustbepaidbeforedividendscanbepaidtocommonstockholders.Dividendsarenotaliabilityofthefirm,andpreferreddividendscanbedeferredindefinitely.Mostpreferreddividendsarecumulative–anymissedpreferreddividendshavetobepaidbeforecommondividendscanbepaid.Preferredstockgenerallydoesnotcarryvotingrights.
DebtversusEquityDebtNotanownershipinterestCreditorsdonothavevotingrightsInterestisconsideredacostofdoingbusinessandistaxdeductibleCreditorshavelegalrecourseifinterestorprincipalpaymentsaremissedExcessdebtcanleadtofinancialdistressandbankruptcyEquityOwnershipinterestCommonstockholdersvotefortheboardofdirectorsandotherissuesDividendsarenotconsideredacostofdoingbusinessandarenottaxdeductibleDividendsarenotaliabilityofthefirm,andstockholdershavenolegalrecourseifdividendsarenotpaidAnall-equityfirmcannotgobankrupt
TheBondIndentureContractbetweenthecompanyandthebondholdersthatincludes:ThebasictermsofthebondsThetotalamountofbondsissuedA