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14

I am not an investment banker, but usually the procedure is something like this: (0) The IB knows the yield of existing bonds with the same maturity and credit rating, so it is not too difficult for them to estimate the yield of the new bonds. They usually announce this as a spread above a benchmark (Ex: "We estimate the new bonds will yield 25 to 50 bps ...


9

Since the stock is listed on NASDAQ, you have access to fairly standard 10Q and 10K financial statements. So you can apply the analysis pioneered by Ed Altman in his Z-score paper - compare this company's fundamental ratios with those of other companies, and see how many of them went bankrupt historically. For example, Moody's KMV uses this approach to ...


8

I have been told: Bankruptcy is very controversial Google Scholar Researchers. You might track companies ratios (e.g., debt to equity ratio, EPS, net income, cash per share (cash/sh), etc.). For instance, GE looks almost bankrupt. But, it is not and there is a very low probability that GE would file for any bankruptcy chapter, I'm just guessing. There ...


5

(1) Often there is some collateral behind the loan (a building, etc.) which with enough effort and time can be sold to recover at least SOME of the value of the loan. However this is not necessarily what the bank is good at or wants to do. Their business is to lend money, not make real estate deals or dispose of dubious merchandise. (2) A smart buyer will ...


4

In addition to @AlexC answer there are 2 additional key points. 1) if the issue is oversubscribed the IB / syndicate team will choose the allocation to each client usually based on their relative importance in terms of future business. 2) There is a specific pricing call that takes place between the issuer and investment banks trading teams. This ...


3

The loans are placed in a vehicle company (“special purpose vehicle” or SPV). This company issues various tranches of debt and purchases the loans from the marketplace. There is no specific posting of collateral by the manager as you describe. The manager is paid a fee to manage the pool of loans and may also own some equity (the most junior security ...


2

MBS are securities which represent ownership in a pool of mortgages ABS are securities which represent ownership in a pool of assets other than mortgages (for example auto loans or credit card loans) Collateralized Debt Obligation are complex entities which issue tranches of securities to investors and use the proceeds to buy MBS, ABS or other assets. The ...


2

Libor is a term rate (eg 3 month libor is the rate at which banks would lend to each other for 3 months). Fed funds (or Sonia in the UK) is an overnight rate. That's the difference.


2

Equity is for the bulls; debt is for the bears. It depends on what kind of capital is available for financing and what the group needing capital can offer in terms of security. Early stage startups have nothing to offer but future returns (especially if they are cash-flow negative). A high risk investment with little collateral and a high burn rate may not ...


2

Suppose Country XYZ can borrow at 5% in XYZ currency and Japan can borrow 1% in JPY. Theoretically, Japan could borrow JPY at 1%, lend it at 1.5% to Country XYZ, and hedge the currency risk using a cross-currency basis swap. This is theoretically possible and Japan could profit on the 50bps (minus hedging costs) spread between its lending and borrowing rate. ...


2

It is mainly subjective, depends on country and sector. E.g. when I worked in private equity in a distressed fund a highly levered company was a company with a net-debt to EBITDA ratio > 7.0. Those are back of the envelope numbers. They actually do not tell you much about the health of the company nor its risk. A company with 7.0x net-debt to EBITDA ratio ...


2

I'm no expert of WACC or company finance, etc. But from a pure bond pricing/trading perspective, bond price embodies at least two risks: interest rate credit (i.e., the company defaults) If a bond price moves, it could either because of interest rate, or because of credit(i.e., the market views the bond as less or more risky). Following the assumption ...


1

Not completely. You can find publicly-issued debt and, if they are public, the last financial statement's numbers for liabilities; however, this may miss any new debt issued or incurred from a bank, payables, and other leases which have changed since the last filing. This also completely misses any shadow obligations: for example, some firms are required to ...


1

How it works has been described clearly by dm63. I commend that answer. I would like to add a few words about "collateral", what does it refer to? Obviously the buyers of the debt tranches issued by the SPV would not do buy if they thought the SPV was just an empty worthless box. They agree to lend their money because the SPV owns some valuable ...


1

I think the fundamental misunderstanding you have is that you think that Cash Flows from Financing Activities includes interest payments. It does not. In only includes principal repayments. Cash Flows from Operating Activities does include interest payments. Look at any Income Statement + Cash Flow Statement on any 10-K from sec.gov and you'll see this to be ...


1

The interest payment in incorporated in the "cost of capital" or discount factor part of the NPV equation. In other words, If you had to borrow money at 8%, then the net present value is calculated by discounting the cash flows by your borrowing costs. So if you count the interest payments, you'll be "double-counting" the borrowing costs. Put another way, ...


1

The reason banks are asked rather than the rate being observed is that transactions do not take place for all of those maturities, at least not with enough banks to make it accurate at any given time. So the best that can be done is ask them at what cost they can borrow and surely each has a bias to either overstate or understate depending on their market ...


1

As a saver you are happy to receive interest but as a borrower the tables are turned and you have to pay interest on the outstanding balance. It is a different perspective that you may not thought about before. Basically you should try to reduce the interest you are paying to the minimum necessary. For example to buy a house you may need to get a mortgage,...


1

debt/loan lifecycle could be described as: 1) origination 2) debt is outstanding; borrower makes regular interest payments and prepays (scheduled or unscheduled) if any. debt/loan is considered performing 2.1) if borrower misses interest payment, debt/loan becomes delinquent, grace period starts 2.2) grace period expires, still no payment - debt becomes ...


1

You can think of it as a 3 state Markov Chain: when a loan is made it is considered GOOD. As long as it is good, the bank automatically accrues earnings on this loan. When the bank notices that a payment from the customer has been missed for a certain time (usually 90 days) the loan becomes NPL or non performing loan; the bank stops recognizing income on ...


1

Net Debt = Total Debt - Cash You can also see from the graph, that Net Debt is always below Total Debt. Cash (and liquid marketable securities) is deducted from Debt, because it could be in theory directly used to repay the debt, hence only "Net Debt" is important; think a company with 1mio Debt and 1mio Cash, one would not say it was in debt because it ...


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