Corporate debt

Wei JZ (2003) A multi-factor, credit migration model for sovereign and corporate debts. J Int Money Finance 22 709-735... 

Leland, H.E., 1994. Corporate debt value, bond covenants, and optimal capital structure. J. Financ. 49 (4), 1213-1252. 

In the UK ILS market, the main drivers are the usual payers and receivers of inflation, namely corporate debt issuers and insurance company/ pension fund investors. IL swaps essentially perform a supporting role... 

Merton applied option pricing techniques to the valuation of corporate debt." By extension the pricing of credit derivatives based on corporate debt may in some circumstances be treated as an option on debt, which is therefore analogous to an option on an option model. 

Robert C. Merton, On the Pricing of Corporate Debt The Risk Structure of Interest Rates, Journal of Finance, 1974, pp. 449—470... 

Data considerations are crucial in choosing factors. The choice of factors will be somewhat limited in markets with little corporate debt. Spread factors should increase the investor s insight and be easy to interpret. Meaningful factors will in practice be somewhat connected to the portfolio assets and construction process and allow a detailed analysis of market risk without threatening parsimony. 

Interest. The iaterest block on Eigure 1 represents the iaterest expense associated with the debt capital. It is an allowed corporate pretax expense for federal income tax purposes and is actually paid out to the debt holders as their earnings. 

Most feasibility studies involve debt and equity. In the section on Economics it was assumed that there was a debt and interest to be paid. The amount of debt, or debt to equity ratio, varies widely from company to company. Some companies assume 100% equity and require the project to meet their set criteria on the entire investment. In this case all borrowings are considered to be at the corporate level, which then provides 100% of the funds to each project. In other companies, particularly utilities, the debt at the project level can be as high as 75% or more. 

In addition to specific deductions and credits, the Tax Code permits state and local governments to issue bonds on which the interest is exempt from federal income tax. This provision means that states and local governments can borrow at interest rates below those paid by private corporations. Municipally owned electricity providers often can issue tax-exempt debt the lower interest rate may have the effect of increasing the provision of electricity by these entities. 

For corporations the same reasoning applies. To offer the prime interest rate the lender must be sure he can get his capital back plus interest. This means that the borrower s total assets must be considerably greater than the current liabilities and debts. Consider the simplified balance sheet given in Table 10-13. By current assets is meant cash and everything involved in working capital-feedstocks, unsold product, plus all the product that has been shipped but for which no payment has... 

Though the sale was not to be consummated until February 1942, Farben would remain in control of the Boruta properties until that time. Boruta, with all movables and immovable supplies., plants, premises, and buildings, was transferred to a corporation organized by Farben. The Polish owners got not a cent for their property. Everything was taken over but the debts ... 

The capital cost rate tp reflects the company-specific interest rate applied to calculate capital costs on working capital like inventories and outstanding liabilities or used for net present value calculation. In case of market financed corporations, the weighted average cost of capital (WACC) is used as opportunity capital cost rate. WACC considers the mixed financing structure of a company consisting of equity and debt capital4. 

The costs of debt can generally be deduced from the terms of credit contracts or corporate bonds issued by the company. Alternatively, if a credit rating is available, the interest rate corresponding to the credit rating of the company can be used (cf. Koller et al. 2005, pp. 319-320). 

Bond A long-term debt-type of security generally issued by corporations or governments to generate cash. The coupon rate is the interest rate paid to the bondholder. The maturity date is when the face value of the bond will be paid to the bondholder. 

Despite the fact that it may be cheaper to use borrowed capital in place of other types of capital, it is unrealistic to finance each new venture by using borrowed capital. Every corporation needs to maintain a balanced capital structure and is therefore hesitant about placing itself under a heavy burden of debt. 

In 1982, a majority interest in Jari was sold to a consortium of 27 Brazilian companies for 280 million (Fearnside and Rankin 1982, Time 1982). A question remains as to who finally paid for the 720 million loss sustained by Ludwig when he sold Jari to the Brazilian investors. Ludwig s parent corporation. International Bulk Carriers of New York may have been able to take the loss as a tax deduction against U.S. income tax, or, Ludwig may have defaulted on part of his debt to Brazilian banks (Jordan and Russell 1989). 

The stockholders expectation of return on their equity can be expressed as an interest rate and is known as the cost of equity capital. The cost of equity required to meet the expectations of the market is usually substantially higher than the interest rate owed on debt because of the riskier nature of equity finance (since debt holders are paid first and hence have the primary right to any profit made by the business). For most corporations in the United States at the time of writing, the cost of equity is in the range 25 to 30%. 

Indulgence by Reilly Tar Chemical Corporation is deeply appreciated, along with that of my colleagues, in particular, Ms. Cheryl Huss. A debt of gratitude is also due my wife, Debi. 

The dust of the recent economic implosion has yet to settle. Capital assets and fortunes have been dreamed up, liquidated, and lost more times than any industrial-size paper shredder can handle in a lifetime. Analysts and investors will bear for years the burden of ignoring the high debt loads of many of the now-fallen giants of technology. Former executives and employees of now defunct companies will continue to battle in the courts for years. Fewer CEOs stay with their company for the long term,10 while the media and the public have hotly debated whether corporate returns have kept up with hyperbolic CEO pay.11 The number of business failures has been... 

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