Question

Using the Internet or the Strayer databases, research the financial statements of a company of your choice. Next, discuss the type of bonds it has issued. You will then explain which features make an issue attractive and unattractive to an investor. To conclude this discussion prompt, elaborate on the key features you would suggest on a future bond issue. Provide support for your response.

Answer 1

Lets assume the example of a company Housing and Urban Development Corporation- it has bond issues of approx $192 millions. The types of bonds it has issued are:

a) Taxable special priority bonds

b) Taxfree Bonds

c) Special infrastructure bonds.

Following points that make a bond more attractive are:

a) The interest rates paid by these bonds are usually higher than they would have got in case of a bank investment.

b) For the corporates these bonds are cheaper than the bank loans.

c) Issuing bonds also give the company freedom as bank loans usually come attached with lots of conditions and clauses.

d) They are better than stock as they do not give away the equity of the company.

Disadvantages:

a) The bonds are subscribed only when the comapnies are highly popular.

b) The bonds have fixed interest so in case in future the market interest rate falls the bonds still needs to be paid at such higher amounts.

To conclude one should keep these things in mind:

a) Issue bonds when the interest rate is lower in the market.

b) Issue bonds that are callable by the issuer so that in case of high rise in interest the company can redeem the bonds and issue fresh bonds.