企业资本结构选择ppt课件.ppt

PlayingGameswithTaxesandIncentives,Debt-EquityChoice,1,TypesofDebtFinancing,1.Bankloans2.Leases3.CommercialPaper4.CorporateBonds,2,BankLoans,LineofcreditAnarrangementbetweenabankandafirmthatrequiresthebanktoquoteaninterestrate,typicallyforashort-termloan,whenthefirmrequeststheloan.Thebankauthorizesthemaximumloanamountwhensettingupthelineofcredit.LoancommitmentAnarrangementthatrequiresabanktolenduptoamaximumprespecifiedloanamountataprespecifiedinterestrateatthefirmsrequestaslongasthefirmmeetstherequirementsestablishedwhenthecommitmentwasdrawnup.Therearetwotypesofloancommitments:Revolver,inwhichfundsflowbackandforthbetweenthebankandthefirmwithoutanypredeterminedschedule.Fundsaredrawnfromtherevolverwheneverthefirmwantsthem,uptothemaximumamountspecified.Theymaybesubjecttoanannualcleanupinwhichthefirmmustretireallborrowings.Nonrevolvingloancommitmentinwhichthefirmmaynotpaydowntheloanandthensubsequentlyincreasetheamountofborrowing.,3,Leases,Adebtinstrumentinwhichtheownerofanasset,thelessor,givestherighttousetheassettoanotherparty,thelessee,inreturnforasetofcontractuallyfixedpayments.Operatinglease:Anagreement,usuallyshortterm,allowingthelesseetoretaintherighttocanceltheleaseandreturntheassettothelessor.Financiallease(orcapitallease):Anagreementthatgenerallyextendsoverthelifeoftheassetandindicatesthatthelesseecannotreturntheassetexceptwithsubstantialpenalties.Leveragedlease(assetpurchasefinancedbyathirdparty),Directlease(assetpurchasefinancedbythemanufactureroftheasset),andSaleandleaseback(assetpurchasedfromthelesseebythelessor).,4,CommercialPaper,Commercialpaperisacontractbywhichaborrowerpromisestopayaprespecifiedamounttothelenderofthecommercialpaperatsomedateinthefuture,usuallyonetosixmonths.Thisprespecifiedamountisgenerallypaidoffbyissuingnewcommercialpaper(rollover).Typicallyonlyavailabletoverylargecompanieswithveryhighcreditratings.Thesecontractsaretypicallytradedinpublicmarketsandcarryverylowinterestrates.,5,CorporateBonds,Bondsaretradablefixed-incomesecurities.Alwayshaveafaceamountof$1,000.Nearlyalwayshavesemi-annualcouponpayments.Couponrateequalsthesumofthetwosemi-annualpaymentsdividedby1,000.Ifthecouponrateis6%thebondpays$30everysixmonths.The6%represents(30+30)/1000.Generallyissuedatwithacouponratesothatthebondsellsfor$1,000intheopenmarket.Thisisknownassellingat“par.”Theinitialcouponrateistypicallysetbythesyndicatedeskoftheinvestmentbank,whichissuesthebondstoits(largelyinstitutional)clients.,6,DecipheringBondQuotes,Bondpricesarequotedper$100offacevalue(thatis1/10thoftheirtruevalue).Abondsellsforparifitsquotedpriceis100.Abondsellsatapremiumifitsquotedpriceisabove100.Abondsellsatadiscountifitsquotedpriceisbelow100.,7,QuotesandAccruedInterest,Bondpricesarequotednetofaccruedinterest.Accruedinterestistheamountofinterestthecurrentownerhas“accrued”sincethelastcouponpayment.Iftheaccruedinterestonabondis$4,andthequoteis$98,thenitwillcostyou$102per$100offaceamountyoubuy.Inotherwordsasinglebondwillrunyou$1,020.,8,CalculatingAccruedInterest,Corporatebondsaccrueinterestona30day/360dayyearrate.Why?Becauseithasalwaysbeenso.Actually,duetothefactthatbondshavebeenaroundalotlongerthanthecalculator.Goaheadtrytodividedsay6.25by365andthenmultiplyby14byhand.,9,AccruedInterestCalculation,FormulaCouponpaymentof$C.Lastpaymentatdatet0.Todayisdatet.AccruedInterest=C(t-t0)/180.Notethathalfayearhasonly180days!,10,WhatAboutthe5or6“Extra”Days?,Soyounoticedayearhasmorethan360days.Whattodo?Sinceallmonthsareassumedtohave30daysthismeansthattheaccruedinterestonAugust31andSeptember1willbethesame.Example:BondpayscouponsonJanuary15andJuly15.OnMarch15twomonthshavepassedandtheaccruedinterestequalsC(60/180).EvenFebruaryisassumedtohave30days!OnMarch31theaccruedinterestisC(75/180)andonApril1itisC(75/180).,11,SecondaryMarketinCorporateBonds,Thesecondarymarketforcorporatedebtislargelyabroker-dealermarket.Secondarymarketmakersofftobuyandsellparticularbonds.Quotedpricesarebetterthoughtofas“ads”sayingadealerishereandreadytotradethebond.Togetapriceatwhichyoucantradeyouneedtoactuallycallthemarketmaker.Yes,asinpickupatelephoneandcall.Afewcorporatebondsarealsotradedonexchanges(seetheNewYorkBondExchangelistingintheWSJ).Butthemarketislimitedtoverysmallretailorders,generallyof10bondsorless.Mostcorporatebondsarenotactivelytradedanywhere.,12,BondCovenants,Equityholderswhocontrolthefirmcanexpropriatewealthfrombondholdersbymakingassetsmorerisky,reducingassetsthroughthepaymentofdividends,andaddingliabilities.Virtuallyalldebtcontractscontaincovenantstorestrictthesekindsofactivities:,13,AssetCovenants,Seniorityandcollateralprovisionsensureeachdebtinstrumentspositioninlineshouldbankruptcyoccur.Seniordebtmustbepaidinfullpriortothejuniordebtreceivingfunds.Juniordebtmustbepaidinfullpriortothepreferredshareholders.Secureddebthasalienonaphysicalasset,thecollateral.(Thinkcarloanorhomemortgage.)Ifthefirmdoesnotpaythesecureddebtontimethedebtholderscanrepossessthecollateral.Ifsellingthecollateraldoesnotpaytheclaiminfullthesecureddebtholdersbecomeunsecuredclaimantsfortheremainingfunds.Theirplaceonline,withtherestofthefirmsclaimants,dependsonthesetofcontractprovisions.,14,DividendCovenants,Preventthefirmfromeffectivelyliquidating,handingthefundstotheshareholders,anddeclaringbankruptcy.Helpsguaranteethebondholdersreceivetheirfundspriortotheequityholders.,15,FinancingCovenants,Preventsthefirmfromissuingnewdebtthathasseniorityoverthecurrentlyissueddebt.Notalldebthasthisprotection!Onoccasioninvestorshaveseenthevalueoftheirbondsplummetwhenafirmissuesnewdebtthatiseitherseniortoorhasparitywith(a.k.a.paripassu)theirbonds.,16,SinkingFundCovenants,Requirethatacertainportionofthebondsberetiredbeforematurity.Atypicalsinkingfundona20-yearbondmightensurethat24%ofthebondsareretiredbetweenyears10and20.Thecompanymustestablishabondsinkingfund,whichistobeusedtomeettheprincipalpaymentwhenthebondmatures.Thecashisoftendepositedwithanindependenttrustee.,17,Theory:TheCostofDebtFinancing,ANNOUNCEMENTEFFECTSWhatistheinformationrevealedbyannouncingadebtissue?AGENCYCOSTSDebtinthecapitalstructureinducesadistortionofinvestmentdecisions(deviationsfromNPVrule).RejectprojectswithpositiveNPVAcceptprojectswithnegativeNPVBANKRUPTCYCOSTSWhatarethecostsincurredintheprocessofresolvingfinancialdistress?,18,AnnouncementEffects,Stockpricesreactiontotheannouncementofadebtissueisasfollows:Non-bankdebt:noimpact.Impliesthatsuchdebtissuesareneutralintermsoftheinformationconveyedtothemarket.Bankdebt(renewal)positive:Equityvalueincreasesbyabout1.9%.Goodnews.Thefactthatthebankiswillingtomakealoanindicatesthatthefirmsprospectsarebetterthanthemarketpreviouslythought.Convertibledebt:negative:Equityvaluedecreasesbyabout2%.Badnews.Theissuanceofthistypeofdebtindicatesthefirmsfutureprospectsarenotasgoodasthemarketpreviouslybelieved.,19,AgencyCostofDebt,Whenafirmhasriskydebtinitscapitalstructure,maximizationofshareholdersvaluemaydifferfrommaximizationoffirmsvalue(sumofequityanddebt).Whenevaluatingaproject,shareholdersemphasizeitsupsidepotential,bondholdersareconcernedmainlywithitsdownsiderisk,fromthepointofviewoftheNPVyoushouldlookatboth.,20,Profits,$,AmountPromisedBondHolders,EquityPayoffDebtPayoff,21,RiskPreferences,Noticethattheequityholderslikeriskandthebondholdersdislikerisk.Encouragesmanagementtoselectriskierprojects,eveniftheyhavelowerorperhapsnegativepresentvalues.,22,Example,Firmowesthebondholders$100.ThefirmcaninvestinprojectGreenorGold.Eachprojectcosts$100inPVtoimplement.ProjectGreenpays$101inPVforsure.ThisisapositivePVprojectwithanexpectedprofitofPV=$101-$100=$1.ProjectGoldpays$25inPVhalfthetime,and$125halfthetime.ThisisanegativePVprojectwithanexpectedprofitof.5($25)+.5($125)PV=$75-$100=-$25.,23,IfFirmMaximizesEquityValue,ProjectGreenFirmearns$101.Equitygets$101minustheamountoweddebt($100)foranexpectedprofitof$1.ProjectGoldIfthefirmearns$25,itisbankruptandtheequityholdersgetzero.Ifthefirmearns$125,thebondholderscollectthe$100duethem.Theequityholdersget$125-$100=$25.Expectedequitypayoffequals.5($0)+.5($25)=$12.5.,24,Profits,$,$100,EquityPayoffDebtPayoff,$100,GreenProjectPayoffs,LowGoldPayoffs,HighGoldPayoffs,ExpectedGoldPayoffs,25,Intuition,Fortheequityholders:Headsequitywins,tailsdebtloses.Ifthefirmdoeswelltheprofitsgotoequity.Ifthefirmdoespoorly,thelossesgotothebondholders.Foragivenexpectedpayoff,themoreriskthebetter.,26,WhattoWatchFor,ProjectswitchingFirmsaysitwillpursuelowriskcashflowsinthefuture.Afterissuingdebtthefirmswitchestoprojectswithhighcashflowrisks.EmpiricalevidenceOnlyseemstobeaproblemwhenfirmsareclosetoorinbankruptcy.Lookforthisinfirmswithlowqualityhighyielddebtordistresseddebt.,27,BankruptcyCosts,Ifafirmisinfinancialdistress,itmaynotbeabletomeetitsdebtobligations.Thismayleadtodefault.Whatarethepossibilities?Informalreorganization.OftencalledWorkouts.BankruptcyFormalreorganization(Chapter11),orliquidation(Chapter7).,28,WhytheBankruptcyCode?,Whythegovernmentsaysweneedaformalbankruptcyprocedure:Tofacilitatelending,creditorsneedlegalrightstoclaimcorporateassets.Toprotectcompaniesfromexcessive,inefficientliquidations.Whywemaynotneedthecurrentstructure:Intheoryenforceableprivatecontactsshouldallowlenderstoclaimassets.Whatisneededisanefficientmechanismfortheverificationofthelendersclaimfollowedbytheswifttransferofassets.Excessiveandinefficientliquidationsareunlikelyinanysetting.Ifthefirmisworthmore“alivethandead”thepartieshaveeveryfinancialincentivetokeepitgoing.Itismorelikely“excessiveandinefficientliquidations”arepoliticalspeakfor“layoffsinmyvotingdistrict.”Currentcodeoftendelayscreditorsclaims,andmakescontractprovisionseithertotallyunenforceableoreffectivelyunenforceable.,29,BankruptcyCosts,Directcosts:Legalandadministrativecosts;lossesforforcedliquidationsIndirectcosts:Lostbusinessopportunitiesduetofinancialdistress:LostcustomersSupplierswantcashManagersmayleaveWhydoshareholderscare?BecausetheycanlosetheirstakeinthefirmBecauseitmakesdebtmuchmoreexpensive,30,TaxAdvantagesofDebtRevisited,Taxdeductibilityofinterestpaymentsmakesdebtdesirableatthecorporatelevel.Whataboutpersonaltaxesforinvestors?InterestpaymentstypicallytaxedatthepersonaltaxrateEquityincomedividendstaxesatpersonalratecapitalgainstaxedatlowerrateOverall,equityincomeistypicallytaxedatalowerrate.Implication:afteradjustingforrisk,investorswillrequireahigherreturnondebtthanequity.Taxadvantageofdebtatthecorporatelevel.Taxadvantageofequityatthepersonallevel.,31,ImplicationsforCapitalStructure,Firmswillwanttousedebtfinancinguptothepointwheretheyeliminatetheirentirecorporatetaxliabilities,buttheywillnotwanttoborrowbeyondthatpoint.Withuncertainty,firmswillpickthedebtratiothatweighsthebenefitsassociatedwiththedebttaxshield,whenitcanbeused,againstthehighercostofdebtincreaseswherethedebttaxshieldcannotbeused.Firmswithmorenon-debttaxshieldsarelikelytouselessdebtfinancing.Thereexistsanoptimal,firm-specificcapitalstructureOptimaldebtlevelwill:IncreasewithexpectedcashflowsDecreasewithriskofcashflowsDecreasewithavailabledeductions,32,FirmValue,Vmax,1,D/V,LowACDHighACEHighTaxBenefits,HighACDLowACELowTaxBenefits,33,DebtPolicyInPractice,MostCFOsdonotcareabout:TaxesBankruptcycostsComparablefirmsItseemsthatthemostimportantfactorsthatdetermineafirmscapitalstructureare:FinancialFlexibilityThecostofdebt,34,HowD/EisDetermined,Structureismoreoftenchangedbychangesintheamountofequity,notintheamountofdebt.Sincedebtissuesareinfrequentrelativetothedailyrevaluationofthestockinthemarketplace.Themostimportantreasonswhyfirmsissue(repurchase)stockare:DilutioninEPS,Marketunder/overvaluation,35,EquityMoreorLess,Less:Sharerepurchases.Stockpricesreactpositivelytotheannouncementofasharerepurchase.Cashpayout:equivalenttodividends;SignalofundervaluationMethods:TenderOffersvs.OpenMarketPurchasesForTenderOffers:Averageincreaseinthevalueofthefirmsstockequals17%.,36,Equity:More,NewIssues,Stockpricestendtoreactnegativelytotheannouncementofanewequityissue.Generalcashoffersoccurafterasignificantrun-upinanissuerssecondarymarketprice.Announcementofanequityissueismetbyanegativepricereaction.However,thenegativepricereactiontendstodecreaseduringeconomicexpansions.Cancellationofanannouncedissueismetbyapositivestockpricereaction.Frequencyofequityissuestendstoriseduringeconomicexpansions.,37,ShelfRegistration,Tosimplifytheproceduresforissuingsecurities,theSECcurrentlyallowsfor“shelfregistration.”Firmswithastockvaluegreaterthan$150millioncanregisterstockorbonds,thenissuethemanytimeinthenext2years.Allowsmanagementflexibilityinwhentoissuesecurities(nowaitingperiodbetweenfilingwiththeSECandsale).Asymmetricinformationperiodlikelytobeworse.ProbablywhyshelfregistrationsareusedmoreforbondsthanstocksFirmsdonothavetonameaninvestmentbankerintheregistrationstatement.Givesfirmmoreleverageinbargainingwitinvestmentbankersforlowerfees.Empirically,issuancecostsarelowerforshelfregisteredequity.,38,ConvertibleDebt,Aconvertiblebondgivestheholdertherighttoexchangeitforagivennumberofsharesofstockanytimeuptoandincludingthematuritydateofthebond.Iftheholderchoosestoconvert,bondholderssurrendertheirbondsinexchangeforagivenfractionofequity.Example:Bondwith$1000facevalueConvertibleintoequity$20pershare(conversionprice)Conversionratio:50sharesperbondConversionpremiumisthedifferencebetweentheconversionpriceandthecurrentstockprice.Convertibledebtissometimescallable.Thismeansthattheissuingfirmhastheoptiontoconvert(callforconversion)thebondsbeforematuritybypayingapricespecifiedinthecontract.,39,ConvertibleBondValuation,Includes:ThevalueofaStraightBondOptionvalueHoldersofconvertiblesneednotconvertimmediately.Instead,bywaitingtheycantakeadvantageofwhicheverisgreaterinthefuture,thestraightbondvalueortheconversionvalue.(Thisiscalloptionforconvertiblebondholders)Atmaturity=Max(A,ET),A=bondsfacevalue($1,000).=conversionratio.ET=stockpriceatmaturity.,40,FirmOptions,CallableBondFirmhastheoptiontocallthebondspriortomaturity.Thisisacalloptionforthefirm.Firmscallbondswhen:Interestratesdecline.Theirbusinessfortunesimprove.,41,CallProvisions:InvestmentGradeBonds,Oftennotcallable.Ifcallabletypicaltermsare“treasuryyieldplus50basispoints.”Englishtranslation:Discounttheremainingcashflowsatthetreasuryrateplus%.Thatisthecallprice.Onlypaystocallsuchbondsifthebondcanberefinancedataspreadsmallerthan50bps.Fromthe“EstimatingtheCAPMInputs”lecture:AverageyieldspreadbetweentreasuriesandAAAbondsis52bps.Essentiallycallprotectedfromchangesininterestratesandmosteventsinvolvingthecompanysfortunes.,42,CallProvisions:HighYieldBonds,Typicallycallable.CallscheduleforatenyearbondoftenfollowsapatternlikethefollowingifthecouponrateisC(example12%):Infiveyearscallat100+C/2(106).Insixyearscallat99+C/2(105).Insevenyearscallat98+C/2(104).Etc.,43,HighYieldCallProvisions,Callprovisionisabetonboththecompanysfuturefortunesandfutureinterestrates.Ifthecompanydoeswellorinterestratesfallsubstantiallyitwillbeabletoissuenewbondsatasubstantiallylowerpromisedinterestrate.Thiswillmakecallingthebondsattractive.Ifpaidinfullthebondmaybeworthsay110duetothehighcouponrateandnowpromisingcompanyfortunesbutcancallitatjust106.,44,WhyIncludeCallProvisions,Signalsthatmanagementbelievesthecompanywilldomuchbetterinthefuture.Callprovisionrequiresahigherinitialcouponrateifthebondisissuedatpar(100).Mustcompensatebuyersforgivingthefirmtherighttocallthebond.Forthefirmtorecoupthehigherinitialcostitmustdowellenoughinthefuturetomakecallingthebondworthwhile.,45,WhatFirmTypesShouldIssueCallableBonds?,Ifmanagementknowsthefirmsprospectsarebetterthanthemarketbelievesthemtobethensuchfirmsshouldfindcallablebondstobecosteffective.Paymorenow,butknowthatwithhighprobabilitywillsavelateron.Forfirmswheremanagementknowsthefirmsprospectsarenobetterthanthemarketbelievesthemtobe,callablebondsshouldnotbecosteffective.Paymorenow,andlatersincewithhighprobabilityitwillneverpaytocallthebonds.,46,Terminology:YieldtoCall,YieldtoMaturity(YTM)Yieldassumingitisnevercalled.YieldtoFirstCall(YFC)Yieldassumingthebondiscalledattheearliestpossibledate.YieldtoWorst(YTW)sometimesYieldtoWorstCall(YWC).Yieldassumingthebondiscalledonthedatethatproducesthelowestyieldforitsowner.,47,QuotingConvention,Whenbondtradersquoteyields,theytypicallyquoteyieldtoworst.Assumptionisthatthefirmintryingtominimizeitscostofcapitalwillendupcallingthebondatthedatethatminimizesthebondsyield.EvenYTWwill,onaverage,overstateabondsexpectedreturnsinceitassumesallpaymentsaremadeontime.Somebondsdonotpayoffontimereducingtheexpectedreturnfromthepromisedreturn.,48,CallableBondYieldExample,Abondpayssemi-annualcouponsof$6per$100offacevalue.Thebondcomesdueintenyears.Thecallscheduleisasfollows:,49,PriceCallDateYieldRelationshipAtIssue,Price,50,PriceCallDateYieldRelationshipInFiveYears,Price,51,PriceCallDateYieldRelationshipInSevenYears,Price,52,YieldtoWorst,CallDates,andTimetoMaturity,Becausethecallpriceistypicallylessthan100+semi-annualcouponLowmarketpricesresultinaYieldtoWorstequaltotheYieldtoMaturity.HighmarketpricesresultinaYieldtoWorstequaltotheYieldtoFirstCall.AstimeprogressesthepriceatwhichYTWswitchesfromYTMtoYFCdeclines.,53,WhythePriceYTWPattern?,Thetradeoffisthecallpriceversusreceivingthestreamofsemi-annualcouponpayments.Lowmarketprice+receivingthecallpriceinthenearfuture=veryvaluablerelativetothefuturecoupons.Very