1. Introduction to Corporate Bonds Introduction to Corporate Bonds Legal Document Publicly Traded Raise Capital

2. Let’s look at some terms. Underwriters Serial vs. Term Face, Par, Principal Secure vs. Unsecure Callable vs. Convertible Bond Indenture Contract vs. Market Rate of Interest

3. Bond Terms Wow Let’s get started

4. Underwriters Corporate staff may not have the time or expertise, so they Outsource the work to underwriters, Investment banks and brokerage firms: Manage all aspects of the bond issuance Charge a fee

5. Bond is a formal legal document Bond Indenture has a variety of features needs proper wording, fine print and disclosures

6. Serial vs. Term Serial Bonds A portion of the principal matures at regular intervals Serial Bonds A portion of the principal matures at regular intervals Term Bonds All of the principal matures at once Term Bonds All of the principal matures at once Have a plan for paying the principal

7. Secure vs. Unsecure Secure Backed by corporate assets Secure Backed by corporate assets Unsecure Backed by the general credit of the corporation Unsecure Backed by the general credit of the corporation Creditors – Pay attention! Creditors – Pay attention! Debenture Bonds

8. Face, Par, Principal Interchangeable Terms Refer to the amount that must be repaid at maturity Due at maturity

9. Interest Rates Contract Rate Stated on the bond Determines cash due on interest payment dates Contract Rate Stated on the bond Determines cash due on interest payment dates Market Rate Market driven Determines Issue price Interest expense Market Rate Market driven Determines Issue price Interest expense Stated Rate Effective Rate Remains constant Fluctuates

10. Callable vs. Convertible Callable Corporation can pay off debt early Callable Corporation can pay off debt early Convertible Bondholders can swap bonds for shares of corporate stock Convertible Bondholders can swap bonds for shares of corporate stock Corporation decides Bondholder decides

11. ABC Corporation Issue DateMaturity Date Interest Payment Dates Principal Contract Interest Rate Minimum Information

12. ABC Corporation 1/1/20X120 years Interest Dates: 6/30 and 12/31 $500,000 8% Principal Contract Interest Rate Interest Payment Dates Maturit y Issue Date

13. Interest Computation Interest due every 6 months 6/30 and 12/31 Interest due every 6 months 6/30 and 12/31 $500,000 X.08 X 6/12 = $20,000 $500,000 X.04 = $20,000

14. Journal Entries 1/1/X1 – ABC Corp issues $500,000, 20 year, 8% bonds at par (100%) 1/1/X1 – ABC Corp issues $500,000, 20 year, 8% bonds at par (100%)

15. Journal Entries 6/30/X1 – ABC Corp pays interest

16. Journal Entries 12/31/XX21 – ABC Corp pays the principal

17. Balance Sheet Presentation ABC Corporation Balance Sheet 12/31/X1 ABC Corporation Balance Sheet 12/31/X1 Long-term Liabilities Bonds Payable$500,000

18. Advanced Topics Bond Discounts Bond Premiums Bond Retirements and Conversions Bond Issue Price Adjusting Entries