LONG TERM DEBT:

Usually long term source of finance is usually obtained by issuing bonds.Bond can be secured or un
secured.Bond is a long term contract in which the borrower agrees to pay both interest and principal to
holder of bond.

Following are types of bond

ZERO COUPN BOND:

Zero coupon bond are bonds that are issued at discount below their redemption value and no interest is
paid on them.

Their main advantage is that they offer large capital gain due to difference between issue price and
redemption price.

No payment will be made by borrower until redemption date.

They are same as deep discount bond but deep discount bond offer low interest rates as compared to
conventional bonds.

CONVERTIBLE BONDS:

 Convertible bonds offer low coupon interest rates due to additional value created by conversion
rights
 Companies issue convertible bonds because of possibility that they will not be redeemed but
will be converted into shares
 On conversion they reduce gearing of company because debt is converted into shares
 They allow companies to plan the impact of conversion on EPS

Following are its disadvantages:

 They offer low yields

 They will not be converted if the share price is not expected to increase.

INTERNATIONAL DEBT FINANCE:

Larger companies with good credit ratings use euro markets to borrow forign currentry.
The companies raise long term funds with euro currency money markets and makets of euro
bond .These markets are collectively called Euromarkets.
Euro currency:It is a currency held by institution outside the country in whichthat currency is
issued.
When the company borrows in forign currency the loan is eurocurrency loan.Bank involve in
eurocurrency market are not subjected to xentral bank reserve requirement.
Euro Bond:
Is a bond sold outside the the jurisdicyion of country in whose curreny the bond is
denominated.
HOW TO ISSUE EURO BOND:

 A lead manager appointed by merchant bank to liases with with credit rating agencies
to orginise credit rating of Eurobond
 The manager will orginise underwriting syndicate to buy bonds
 The underwriting syndicate then sell the bond
Advantage
Cheaper than forign currency loan
Is more flexibe
Disadvantage
Issue cost
Forign exchange risk