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Topic 7 Business Borrowing And Leasing

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Business borrowing and Leasing
Outline ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Outline (cont.) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Bond Terminology ,[object Object],[object Object],[object Object],[object Object]
Bond Terminology ,[object Object],[object Object],[object Object],[object Object]
Bond Terminology ,[object Object],[object Object],[object Object]
Recovery Rates Ultimate Percentage Recovery Rates on Defaulting Debt (1988 – 2002) Recovery Percentage
Bond Terminology ,[object Object],[object Object],[object Object]
Bond Terminology ,[object Object],[object Object],[object Object]
Bond Terminology ,[object Object],[object Object]
Covenants ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Event Risk: An Example October 1993 Marriott spun off its hotel management business worth 80% of its value. Before the spin-off, Marriott’s long-term book debt ratio was 2891/3644 = 79%. Almost all the debt remained with the parent (renamed Host Marriott), whose debt ratio therefore rose to 93%. Marriott’s stock price rose 13.8% and its bond prices declined by up to 30%. Bondholders sued and Marriott modified its spin-off plan.
What is a Convertible Bond? ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
What is a Convertible Bond? ,[object Object],default bond repaid in full Bond value ($ thousands)
What is a Convertible Bond? ,[object Object],Conversion value ($ thousands)
What is a Convertible Bond? ,[object Object],default bond repaid in full convert Value of convertible ($ thousands)
Bond Warrant Package ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Bond Innovations
Straight Bond vs. Callable Bond Value of straight bond 25 50 75 100 125 150 25 50 75 100 bond Value of Straight bond bond callable at 100
Lease Terminology ,[object Object],[object Object],[object Object],[object Object],[object Object]
Types of Leases ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Lease Accounting ,[object Object],[object Object],[object Object],[object Object],[object Object]
Criteria for a Capital Lease ,[object Object],[object Object],[object Object],[object Object],[object Object]
Taxes ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Incremental Cash Flows ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Example: Lease Cash Flows ,[object Object],[object Object],[object Object],[object Object],[object Object]
Lease or Buy? ,[object Object],[object Object],[object Object]
Net Advantage to Leasing ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Example ,[object Object]
Good Reasons for Leasing ,[object Object],[object Object],[object Object],[object Object],[object Object]
Dubious Reasons for Leasing ,[object Object],[object Object],[object Object]
Quick Quiz ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

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Topic 7 Business Borrowing And Leasing

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  • 7. Recovery Rates Ultimate Percentage Recovery Rates on Defaulting Debt (1988 – 2002) Recovery Percentage
  • 8.
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  • 12. Event Risk: An Example October 1993 Marriott spun off its hotel management business worth 80% of its value. Before the spin-off, Marriott’s long-term book debt ratio was 2891/3644 = 79%. Almost all the debt remained with the parent (renamed Host Marriott), whose debt ratio therefore rose to 93%. Marriott’s stock price rose 13.8% and its bond prices declined by up to 30%. Bondholders sued and Marriott modified its spin-off plan.
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  • 19. Straight Bond vs. Callable Bond Value of straight bond 25 50 75 100 125 150 25 50 75 100 bond Value of Straight bond bond callable at 100
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