CFS debt financing

Q1: What are the main types of loan commitments?

A: Line of Credit, Revolving Loan Commitment, Non-Revolving Loan Commitment, Term Loans

Q: Line of Credit

A: Borrow up to a limit, repay and redraw as needed.

Q: Revolving Loan Commitment

A: Flexible, long-term credit with periodic review.

Q: Non-Revolving Loan Commitment

A: Borrow once up to limit; cannot redraw.

Q: Term Loans

A: Fixed amount borrowed upfront, repaid over a set schedule.

Q2: How do private placements and public placements differ for bonds?

A2: Private: Fewer regulations, lower cost, illiquid, targeted to specific investors. Public: Highly regulated, higher cost, liquid, open to general investors.

Q4: What is the difference between secured and unsecured bonds?

A4: Secured bonds are backed by collateral; unsecured bonds (debentures) rely on issuer's creditworthiness.

Q5: What are protective covenants in bond contracts?

A5: Legal restrictions to protect bondholders.

Q: Negative covenants

A: Restrict actions (limit dividends, additional debt).

Q:Positive covenants

A: Require actions (maintain financial ratios, provide statements).

Q6: What is a sinking fund provision (equal and balloon)?

A6: A structure for repaying bonds gradually. Equal payments: Spread over term. Balloon payment: Mostly at maturity.

Q7: What is a call provision?

A7: Gives issuer the right to redeem bonds early; creates reinvestment risk for investors.

Q8: Why do firms issue callable bonds?

A8: To reduce interest costs if rates fall, enhance financial flexibility, or refinance debt strategically.

Q: Domestic bonds

A: Issued in home country, local currency.

Q: Foreign bonds

A: Issued in another country (Yankee = US, Bulldog = UK).

Q: Eurobonds

A: Issued outside home country in any currency.

Q: Global bonds

A: Traded in multiple markets simultaneously.

Q10: What factors determine bond ratings?

A10: Probability of default, contractual protections, financial health, and covenants.

Q11: How are bonds classified by credit quality?

A11:Investment-quality: High grade (AAA-AA), Medium grade (A-BBB). Speculative/Junk: Low-quality (BB and below), higher default risk