1. 39.f I Embedded Options in Bonds
1.1. Callable bond
1.1.1. Issuer can redeem early
1.1.2. Benefit issuer if rates fall
1.1.3. Higher coupon for investor
1.2. Putable bond
1.2.1. Investor can sell back early
1.2.2. Benefit investor if rates rise
1.2.3. Lower coupon for issuer
1.3. Convertible bond
1.3.1. Investor can convert to stock
1.3.2. Upside potential with equity
1.3.3. Lower coupon
1.4. Exchangeable bond
1.4.1. Convert into stock of another company
2. 39a I Basic Features
2.1. Issuer
2.1.1. corporations
2.1.2. governments
2.1.3. quasi-government entities
2.1.4. supranational entities
2.2. Maturity date
2.2.1. Maturity <= 1: money market securities
2.2.2. Maturity > 1: capital market securities
2.3. Par value
2.3.1. Par > market -> premium bond
2.3.2. Par < market -> discount bond
2.4. Coupon rate
2.4.1. zero coupon pay no interest = pure discount securities
2.5. Coupon frequency
2.5.1. Annual, Seminual, Quaterly, Monthly
2.5.2. Annual, Seminual, Quaterly, Monthly
2.6. Currency
2.6.1. Single currency
2.6.2. Dual-currency (coupon#principal)
2.6.3. Currency option bond
3. 39.b I Bond Indenture
3.1. Legal agreement
3.1.1. between issuer & bondholders
3.2. Bond features
3.2.1. par, maturity, coupon
3.3. Issuer obligations
3.3.1. pay interest & principal
3.4. Source of repayment
3.4.1. taxes, cash flows
3.5. Collateral or credit enhancement
3.6. Covenants
3.6.1. restrictions & duties
3.7. Trustee
3.7.1. represents bondholders
4. 39.c I Covenants
4.1. Purpose
4.1.1. protect bondholders, control issuer behavior
4.2. Negative covenants
4.2.1. Limit new debt
4.2.2. Restrict asset sales
4.2.3. Limit dividend payouts
4.3. Affirmative covenants
4.3.1. Timely payments
4.3.2. Maintain financial ratios
4.3.3. Provide audited reports
5. 39.d I Issuers & Bond Classifications
5.1. Issuers
5.1.1. Government
5.1.1.1. sovereign bonds
5.1.2. Corporations
5.1.2.1. corporation bond
5.1.3. SPVs/SPES (MBS/ABS)
5.1.3.1. securitized bonds
5.2. Classification
5.2.1. Legal type: sovereign, municipal, corporate, securitized
5.2.2. Credit quality: investment-grade vs high-yield
5.2.3. Currency: domestic, foreign, eurobond
5.3. Repayment sources
5.3.1. Taxes, business cash flows, project revenue
5.4. Collateral or credit enhancement
5.4.1. Internal
5.4.1.1. Subordination
5.4.1.2. Overcollateralization
5.4.1.3. Reserve accounts
5.4.1.4. Overcollateralization
5.4.2. External
5.4.2.1. Surety bond
5.4.2.2. Letter of credit
5.4.2.3. Cash
5.4.2.4. Collateral/bank guarantees
6. 39.e I Bond Structures
6.1. Bullet bond
6.1.1. coupons only, full principal at maturity
6.2. Amortizing bond
6.2.1. pay principal + interest each period
6.3. Partially amortizing
6.3.1. some principal + balloon at end
6.4. Sinking fund
6.4.1. repay principal gradually (predefined)
6.5. Floating-rate (FRN)
6.5.1. ref rate + spread
6.6. Deferred coupon
6.6.1. delay interest payments
6.7. Step-up bond
6.7.1. coupon increases over time
6.8. PIK bond
6.8.1. pay interest by issuing more debt
6.9. Index-Linked Bond
6.9.1. principal or coupon adjusted for inflation
6.10. Credit-Linked Coupon Bond
6.10.1. coupon changes with credit event