Topic 7 Business Borrowing And Leasing

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]

Recovery Rates Ultimate Percentage Recovery Rates on Defaulting Debt (1988 – 2002) Recovery Percentage

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]

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]

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]

Topic 7 Business Borrowing And Leasing

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Topic 7 Business Borrowing And Leasing