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Julie (Long Term)

Bonds or long-term debt refer to any long-term promissory note issued by a firm with a maturity of over 12 months. They have advantages like being linked to company productivity and allowing the firm to maintain basic control, but disadvantages include restricting near-term cash flow and interest being a permanent burden. Common types include debenture bonds, subordinated debentures, income bonds, and mortgage bonds which can be further subclassified. Bonds are eventually retired through repurchase at maturity, call options, or elimination from the issuer's books.

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Rommel Cruz
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40 views9 pages

Julie (Long Term)

Bonds or long-term debt refer to any long-term promissory note issued by a firm with a maturity of over 12 months. They have advantages like being linked to company productivity and allowing the firm to maintain basic control, but disadvantages include restricting near-term cash flow and interest being a permanent burden. Common types include debenture bonds, subordinated debentures, income bonds, and mortgage bonds which can be further subclassified. Bonds are eventually retired through repurchase at maturity, call options, or elimination from the issuer's books.

Uploaded by

Rommel Cruz
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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BONDS or

LONG-TERM
DEBT
Bonds or Long-term Debt
▹ any long-term promissory note
issued by a firm.
▹ any amount of outstanding debt a
company holds that has a maturity 2

of 12 months or longer.
▹ the legal agreement between the
issuing firm and the bondholders is
called indenture.
Advantages:
▹ Linked to company
productivity.
▹ Basic control of the firm is 3

not shared with the


creditor.
▹ Longer repayment period.
Disadvantages:
▹ Restricts company’s monthly
cash flow in the near term.
▹ Interest on long-term debt is
4
a permanent burden to the
company.
▹ Much of long-term debt is
tied to collateral.
Basic Types
of Bonds or
Long-term
Debt
1. Debenture Bonds- unsecured loan;
these can be issued only by
companies with the best credit ratings.

2. Subordinated Debenture- (also known


as junior security or subordinated
loan). Is a loan or security that ranks
below other loans.
6
3. Income Bonds- pay interest only if
the issuing company has earnings.

4. Mortgage Bonds- a pledge of


certain assets, such as real
property, for a loan.

7
SUBCLASSIFICATION OF
MORTGAGE BONDS:
a) First Mortgage Bonds
b) Second Mortgage Bonds
c) Blanket or General
Mortgage Bonds
8

d) Closed-end Mortgage Bonds


e) Open-end Mortgage Bonds
f) Limited Open-end Mortgage
Bonds
RETIREMENT OF BONDS
▹ repurchase of bonds from investors
that had been previously issued.
▹ The issuer retires bonds at the
scheduled maturity date of the
instruments or 9

▹ if the bonds are callable, the issuer


has the option to repurchase the
bonds earlier.
▹ once bonds are retired, the issuer
eliminates the bonds payable on its
books.

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