Raising capital
This is an excerpt from the paper...
Companies in need of raising capital can do so in two ways: one, they can sell equity to raise cash, or two, they can borrow the funds. If the company chooses to sell equity, it faces possible ownership dilution and a loss of control for its current owners. For this reason, it may be more advantageous for the company to seek borrowed funds. Two common sources of borrowed funds are loans and bonds. Loans are generally administered by banks or similar financial institutions; bonds are issued directly by the company to the bondholders. Because bonds are an important investment option held by pension funds, insurance companies and other institutional investors, the market has established rating systems for evaluating the attractiveness of bonds issued by various companies. Bonds which fall in the lower echelons of this rating system are called "junk" bonds. Such bonds offer high return for high risk. This research examines recent developments in the junk bond market, and the events which led to the current junk bond market situation.Bondholders are creditors of the issuing corporation, and as such, have a prior claim on earnings and assets, ranking ahead of preferred and common stockholders. Interest must first be paid on bonds before dividends can be issued to stockholders, and in case of dissolution or bankruptcy, bondholders have a prior claim on assets over stockholders. There are several types of bonds which can be issued: debentures, first mortgage bonds, eq
. . .
igh bond ratings but which had fallen on hard times, Milken sought out companies which needed capital but which did not have a strong record. These companies were generally young and promising with a need for capital. Since few companies would sell bonds not rated investment grade, Drexel was able to take full advantage of Milken's activities. Milken was able to persuade these young companies that offering bonds yielding 13 percent when investment grade bonds were paying 9 percent could benefit them financially, and he was able to persuade investors that the bonds were less risky than their yield might suggest.
Milken continued to be innovative during the early 1980s when he began to use junk bonds to finance hostile takeovers. These takeovers were the hallmark of the 1980s in the financial markets, and are characterized by a group other than the current owners seeking a controlling interest in the company. By using junk bonds to leverage the deal, so-called corporate raiders could raise enough capital to outbid the current management and any other competitors who might be interested in the companies. During 1982, the total volume of junk bond issuance was $2.5 billion; by 1986, that figure had increased to more than $34 bi
. . .
Some common words found in the essay are:
Milken Drexel's, , Burnham Lambert, Drexel Milken, Baa Junk, Analysts Journal, junk bonds, Caa Ca, junk bond, Business Week, junk bond market, bond market, References Apostolou, apostolou 1990, bonds issued, Series Nathans, investment grade, savings loans, bonds companies, junk bond prices, bond prices, investors continue seek, yields junk bonds, bonds yielding, equipment trust certificates,
Approximate Word count = 1657
Approximate Pages = 7 (250 words per page)
More Essays on Raising capital
|
Customer Service
to Over
32,000 Professionally Written Papers!!!
