CORPORATE FINANCE

Session 03

Outline

Main textbook for the course : Brealey and Myers, Principles of corporate finance, McGraw-Hill

A. An overview of corporate financing

An example of a variety of debt securities

Common stock : definitions, stockholder's rights

The case of Partnerships ; the case of REIT (Real Estate Investments Trusts)

The various kind of debts

• Maturity

• Sinking funds

• Seniority

• Collateral

• Junk bonds

• Public vs private issue

• Floating vs fixed rate (Prime rate, LIBOR)

• Eurobonds, eurodollars

• Lease (the corresponding fixed assets do not appear in the Balance sheet, and their total financing interest and capital goes through the income statement, before tax)

• To discount of bill of exchange : to sell to a bank some debtor's paper. There again it leaves the Balance sheet, but it is still guaranteed by the firm until it is repaid by the debtor. Lease and discount distort the interpretation of the Balance sheet figures.

Preferred stocks

Convertible securities :

• Warrants

• Convertibles

Derivatives

• Options

• Futures

• Forwards

• Swaps

The reasons for present day financial innovation.

Patterns of corporate financing : the US

B. How corporations issue securities

Venture capital

Initial public offering (IPO) : primary and secondary

Arranging a public issue

Pricing a new issue

Cost

The underwriter

The private placement

The "tomstone"