Blossary – Long Term Debt

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Long term debt is basically a loan that last for more than a year. It is a liability that a company or an individual holds which matures, or has to be paid back in not less than a year. Long term debt does come with interest payments, which is the cost of borrowing for the one who takes the debt, and a reward for the one that loans out the amount.

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Floating rate bonds

These bonds come with a floating rate of coupon payments, which means that coupon payments may vary based on the market fluctuations until the maturity. Floors and ceilings are often used to protect ...

Zero coupon bonds

These bonds do not have a coupon payment attached to them which helps in evading taxes. These are also offered at a price that is lower than the par value.

Junk Bonds

These are bonds that have a rating that is less than BB. These bonds do come with a high yield but also have a high default risk attached to them.

Bond rating

Bond rating indicates the probability of a default risk that is attached to the bond. Companies are usually ready to pay for a good rating since bond rating is what attracts investors.

Bond refunding

Bond refunding is when a company replaces a bond entirely or partially. Refunded bonds usually have a really good rating some cash is kept aside for safety by the issuer of bond.

Call provision

This is a feature in a bond that allows the company to buy back the bond at a price that is decided. The period for using this provision is restricted though.

Positive covenants

These are agreements where company has to generate funds by selling assets, has to keep assets in good condition and has to regularly get the financial statements audited for compliance purposes.