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Advantages & Disadvantages Of Lending & Debt Securities Crib Sheet Notes

LPC Law Notes > Finance and Capital Markets Notes

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A more recent version of these Advantages & Disadvantages Of Lending & Debt Securities Crib Sheet notes – written by Cambridge And Oxilp And College Of Law students – is available here.

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Advantages/Disadvantages Lending & Debt Securities (Borrower's Perspective) 1) Advantages of Lending a. Quick a.i. Can take less than 6 weeks b. Cost b.i. Cheaper to set up b.ii. Does not require underwriting c. Confidentiality c.i. Others do not have to know about it d. Flexibility d.i. Ability to draw down the loan d.ii. Repayments can be varied e. Multi-currency option f. Credit Ratings f.i. A Company can have a low credit rating or uncertainty over cash flow in a loan f.i.1. Although if the borrower is at investment grade then it will obtain more favourable terms in a loan agreement g. Business relationships g.i. Borrowers know who the lenders are 2) Advantages of Debt Securities a. Lower interest rates a.i. Normally PS500 million is the minimum in the Capital Markets, but the large amount borrower does experience lower interest rates a.ii. There are more investors in the Capital Markets, therefore the risk is more spread out resulting in greater liquidity a.iii. The bonds are transferable a.iv. Regulatory costs are lower b. Unsecured b.i. Debt Securities are often unsecured c. Less onerous c.i. Minimum restrictive covenants c.ii. Investors do not have too much scope to negotiate d. Liability d.i. Joint & Several liability between the co-managers d.ii. Underwriting d.ii.1. Guarantee that the borrower will receive all its money e. Financial Information e.i. Borrower does not need to release a multitude of financial information to investors after the issue 3) Disadvantage of Lending a. Restrictions a.i. A borrower will be subject to a multitude of covenants, undertakings, warranties and indemnities that can restrict its functioning a.ii. There is little room for negotiation by the borrower b. Financial Information b.i. A bank will require a borrower to release various information to it before it will agree to lend c. Secured d. Higher interest rates d.i. Regulatory costs of borrower d.ii. Mandatory fees of the bank

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