The affirmative covenants of indenture set forth activities that the borrower promises to do. The negative covenants set forth certain limitations and restrictions on the borrower's activities.
Step-Up Notes: The securities whose coupon rate increases over time.
Single step-up notes: There is only one change (or step-up).
Multiple step-up notes: There is more than one changes.
Deferred Coupon Bonds
Accrual bonds, unlike zero-coupon bonds, do not always sell at a discount to face value. The interest accrues forward and thus the bonds are likely to sell for more than face value.
Floating-Rate Securities: Coupon rate = Reference rate + Quoted margin
A floater could have a Cap, the maximum coupon rate that will be paid, or a Floor, the minimum coupon rate.
Inverse floaters: whose coupon rate move in the opposite direction from the change in the reference rate.
Coupon = K - L * (Reference Rate)
Full Price (or Dirty Price) = bond price + accrued interest
A bond in which the buyer must pay the seller accrued interest is said to be trading cum-coupon (with coupon).
If the buyer forgoes the next coupon payment, the bond is said to be trading ex-coupon (without coupon).
In the instance that the bond issuer defaulted the interest payments, and the bond is sold without accrued interest, it is called to be traded flat.
If the issuer is not required to make any principle repayment prior to the maturity date, such bonds are said to have a bullet maturity. Otherwise the bonds are said to be amortizing securities, for example, mortgage-back securities, or sinking funds.
Callable bonds:
If the bond issuer may not call the bond for a number of years, the issue is said to have a deferred call. The date at which the bond may first be called is referred to as the first call date.
When less than entire issue is called, the certificates to be called are either selected randomly or on a pro rata basis. Pro rata redemption means that all bondholders will have the same percentage of their holdings redeemed.
A make-whole premium provision (or a yield-maintenance premium provision) provides a formula for determining the premium that an issuer must pay to call an issue.
Call protection is much more robust than refunding protection.
Sinking fund provision: An indenture may require the issuer to retire a specified portion of the issue each year.
Convertible bond is an issue that grants the bondholder the right to convert the bond for a specified number of shares of common stock.
Put provision grants the bondholder the right to sell the issue back to the issuer at a specified price on designated dates.
A nondollar-denominated issue is one in which payments are not denominated in US dollar.
Regular redemption price refers to bonds being called according to the provisions specified in the bond indenture. When bonds are redeemed to comply with a sinking fund provision or because of a property sale mandated by government authority, the redemption prices (typically par value) are referred to as "special redemption prices." There is no such thing as a specific redemption price.
Refunding from a new debt issue at a higher interest rate is not prohibited, however their purchase cannot be funded by the simultaneous issuance of lower coupon bonds.
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