Caroline decided to expand her frozen food business, Zizan Inc., a private company in Texas.

Caroline decided to expand her frozen food business, Zizan Inc., a private company in Texas. She seeks help from an underwriter that can assist her to issue 20-year new bonds with a total amount of USD 50 million. Jason Bourn who works with Merrill Lynch (an underwriter) agreed to help Caroline on this matter. He discuss with Caroline on the possible feature of the bond and coupon rate for Zizan Inc. Caroline, however is deliberating on the costs and benefit of some of the bond features as she is uncertain on how each of bond feature can influence the coupon rate.

Questions

Since you are working as assistant for Caroline, you have been asked by Caroline to discuss in detail with Jason Bourne and report back to her. You need to report on the impact of bond feature on bond's coupon rate. She wants you to also include the advantages and disadvantages of each of the bond's feature.

The features of the bond that you need to investigate is such as following

i. Is the bond having any collateral as security?

ii. Bond's seniority

iii. Is there any sinking fund available

iv. Is the bond has any call provision with specified price and date?

v. Is there any deferred call attach together with the call provision

vi. Is there any make-whole call provision?

vii. Is there any positive and covenants attached? Discuss also other possible positive and negative covenants that Zizan Inc should consider

viii. Is the bond has any conversion feature?

ix. Is the bond has a floating rate coupon?