Chapt. 17 LT Debt1 Long-term Liabilities: BONDS see “Confederation Bridge…”p. 734 of text Text pages734  757 (no amortization) DO:P.766+ Questions; BE16-1,2,3; E16-1,2; P16-4A

What are bonds? p.736 Bonds are a form of ____________ notes issued by corporations, governments, and governmental agencies. Bonds, like common shares, can be _____ in small denominations (usually a thousand dollars), and as a result they attract investors. Often __________ against assets; if unsecured  _____________ _____________on assets is case of bankruptcy No ASSET as Collateral

Chapt. 17 LT Debt3 Financing the Growth of a Company EQUITY  selling (issuing) more shares of a company  Loss  Lower potential DEBT  Borrow large sums of money required to ________ (pay for) big projects  Long-term capital to ______ the future revenues generated from the acquisition

Chapt. 17 LT Debt4 BONDS: Pros & Cons p.737  Maintain  Interest is (p. 737 ill.16-2)  Lower ______ to creditors than equity  ________________= “servicing the debt”  ________= principal paid back at maturity

Chapt. 17 LT Debt5 TYPES OF BONDS p.738 Bonds that mature at a single specified future date are called___________. In contrast, bonds that mature in installments are called___________

Chapt. 17 LT Debt6 TYPES OF BONDS p.738 _______________are issued in thename of the owner and have interest payments made by cheque to bondholders of record. ___________________are not registered; thus bondholders must send in coupons to receive interest payments.

Chapt. 17 LT Debt7 TYPES OF BONDS p.738 ______________permit bondholders to convert the bonds into common shares at their option. __________________ are subject to call and retirement at a stated dollar amount prior to maturity at the option of the issuer. ___________________are subject to redemption prior to maturity at the option of the holder.

Chapt. 17 LT Debt8 Bond (NOT James) Bond p ”; CompanyCouponMaturityPriceYield Loblaws6.65%Nov8/ %

Chapt. 17 LT Debt9 “what is it worth”?  Market Value  discount / premium  Debt “Rating”  The market value of a bond is equal to the present value of all the future cash payments promised by the bond.

Chapt. 17 LT Debt10 INTEREST RATES AND BOND PRICES, Ill. 16-7, p % 5% 6% Bond Contractual Interest Rate 5% Issued when Market Interest Bonds Sell Rates at

Chapt. 17 LT Debt11 Example: Nortel has listed in their AR 200 million 6.88% note (i.e. debt or bonds) due Sept 1, Issued Sept 1998 at par, semi annual interest Issue date:Cash Bonds payable Sept 1, ‘03Bond Interest Expense Cash Dec 31 ‘03Bond interest expense Accrued interest expense payable March 1 ‘03Bond interest expense Bond interest payable Cash Sept 1 ’23Bond payable Cash