Funding reducing debt

Due to the lack of power supplies, the expected income of the energy sector could not be achieved. And, the extended imports of electrical power are prone to build up debts that may reduce the funding of essential repairs necessary to safeguard a stable operation. Hence, without exceptional efforts during the summer 2003 the situation in the winter 2003-2004 was assumed to become worse than the preceding winter. 

Companies whose debt securities are rated "investment grade" can usually issue securities in the capital markets at interest rates competitive with, or even lower than, other generally available sources of funds, such as bank loans. The higher the company s rating within the investment grade categories, the lower the company s cost of funds. This reduced cost is a result of the lower interest rate necessary to induce investors to buy the company s securities. ... 

Since 1998 the growth in the market has slowed. This was to be expected given that the programme was maturing and the SNDO did not feel it necessary to pump the market with supply just for the sake of liquidity. The inflation rate fell sharply and this lowered the cost of funding the inflation-linked debt. However, it did not prevent the difference between nominal and real rates falling sharply, thus reducing the cost effectiveness of inflation-linked versus nominal debt from the Debt... 

The call schedule works like this. If market interest rates rise after the bonds are issued, ABC Corp. gains, because it is incurring below-market financing costs on its debt. If rates decline, investors gain, because the value of their investment rises. Their upside, however, is capped at the applicable call price by the call provisions, since the issuer will redeem the bond if it can reduce its funding costs by doing so. 

Presumably when the debts are paid off, the Three Gorges Dam Project will generate funds that can be used by the China Three Gorges Project Corporation for new projects or to reduce energy costs in China. 

Credit-linked notes are hybrid securities, generally issued by an investment-grade entity, that combine a credit derivative with a vanilla bond. Like a vanilla bond, a standard CLN has a fixed maturity structure and pays regular coupons. Unlike bonds, all CLNs, standard or not, link their returns to an underlying asset s credit-related performance, as well as to the performance of the issuing entity. The issuer, for instance, is usually permitted to decrease the principal amount if a credit event occurs. Say a credit card issuer wants to fund its credit card loan portfolio by issuing debt. To reduce its credit risk, it floats a 2-year credit-linked note. The note has a face value of 100 and pays a coupon of 7.50 percent, which is 200 basis points above the 2-year benchmark. If more than 10 percent of its cardholders are delinquent in making payments, however, the note s redemption payment will be reduced to 85 for every 100 of face value. The credit card issuer has in effect purchased a credit option... 

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