Minicase Raines and Warren Finance Essay

The disadvantage of employ comp each corroborative to back the gravels is, the as position used as collateral can non be sold during the term of the marry and must maintain its value. 2. seniority of the bond. The seniority of the bond is the order in which bonds will be compensable in the event of bankruptcy. The more senior the bond, the higher priority of universe paid if there is a bankruptcy, and the lower the verifier rate because the happen to the bond owner is lower. 3. The presence of a sinking feeling fund. A sinking fund is an account pay off up by the regent of the bonds.The trustee saves and pools money to purchase, pay off, or cancel bonds early. Setting up a sinking fund will lower the risk, thus lowering the verifier rate. The risk to the company is not having available funds to feed the trust. 4. A expect provision with specified look for dates and call prices. A call provision could be included to call the bonds if refer rates spill substantially. Th e call provision will raises the coupon rate save hold dear you from paying a high rate for a long effect in the event rates drop. 5. A deferred call accompanying the call provision.A deferred call accompanying the call provision would give the bond purchaser 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 rice beer rate for the deferred period. Therefore, you have a lower coupon rate than a call provision with no deferral period but motionlessness 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 supreme covenants for purchaser and some S&S might cons ider. despotic covenants on bonds are proactive and reduce the coupon rate. Applying positive covenants to the bond makes it more attractive and secure to the investor by applying mark offs 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 S&S might consider. Negative covenants on bonds are repressing 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 channel actions.You may want 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 conversion 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 S&S 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 much 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 treetop 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.