Question 1. Explain why selecting a target senior debt rating is a reasonable approach to choosing a capital structure. Explain why a target senior debt rating of single- A is a prudent objective when there is only a very limited new issue market for non-investment-grade debt, and when investor willingness to purchase triple-B-rated debt is likely to be highly sensitive to the state of the economy.
Question 2. What is a lease? Compare and contrast an operating lease and a capital lease. What is a leveraged lease? What are the main advantages of leasing when compared with conventional debt financing?
Question 3. A company's capital structure consists solely of debt and common stock equity. What actions should be taken if the company believes it is:
(a) overleveraged?
(b) underleveraged?
Question 4. What are the three steps in a comparative credit analysis? How can a firm select an appropriate rating objective?
Question 5. What is subordinated debt? What is a debenture? What is convertible debt? What are loan covenants? Why do firms usually issue convertible bonds in that form rather than as senior debt?