Minicase Raines and Warren Finance Essay

The disadvantage of using club collateral to sticker the chemical bonds is, the as wane used as collateral can non be sold during the verge of the bond and must maintain its value. 2. Seniority of the bond. The seniority of the bond is the tramp in which bonds give be paid in the event of bankruptcy. The much than senior the bond, the high gearer priority of being paid if there is a bankruptcy, and the lower the coupon identify because the stake to the bond owner is lower. 3. The bearing of a sinking fund. A sinking fund is an account set up by the trustee of the bonds.The trustee saves and pools money to purchase, pay off, or call bonds early. Setting up a sinking fund go forth lower the risk, thus lowering the coupon crop. The risk to the comp some(prenominal) is not having available funds to feed the trust. 4. A call provision with qualify call dates and call prices. A call provision could be include to call the bonds if interest pass judgment drop substantially. Th e call provision willing raises the coupon rate but protect you from paying a high rate for a long period in the event rates drop. 5. A deferred call attach to the call provision.A deferred call ac clubing the call provision would give the bond purchaser a certificate period where the bond could not be called. Adding this provision will invalidating you from calling the bond for a set time (call period), and puts you at risk of paying a high interest rate for the deferred period. thitherfore, you have a lower coupon rate than a call provision with no deferral period but still higher than a bond with no call provision at all. 6. A make- integral 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 positive covenants for purchaser and some S&S might consider. Positive covenants on bonds are proactive and constrict the coupon rate. Applying positive covenants to the bond makes it more attractive and secure to the investor by applying conditions 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 recognise 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 restrictive and reduce the coupon rate. Applying negative covenants to the bond makes it more attractive to the investor but may hinder the operation by move limitations on your business 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 con version 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 tone 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 cap on how much the rate can be increase or decreased would be a good addition if you prefer this option. This would be a consideration if you choose not to have a call provision.