Microsoft PowerPoint - PoF.ppt

Characteristicsƒ 104

Bond covenants / “me first rules”:

help to protect

bondholders from the moral hazard of equity holders!

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Asset covenants

Dividend covenant:

restricts the payment of dividends

• Secured /

senior bonds:

asset backed, e.g. mortgage bonds

Unsecured bonds

• Subordinated /

junior bonds:

claim that is subordinated to

other debt instruments; lowest priority

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Sinking fund covenants:

bond must be paid off systematically

over its life, i.e. a part of the prin

cipal must be repaid before T, e.g.

annuity bond

Multi-period deterministic cash flows: FI securities - Introduction