public debt offerings

(noun)

A public debt offering is the offering of debt securities of a government, a company or a similar corporation to the public.

Related Terms

Examples of public debt offerings in the following topics:

  • Shelf Registration

    • Shelf registration is a type of public offering in which the issuer is allowed to offer several types of securities in a single prospectus.
    • Shelf registration or shelf offering is a type of public offering where certain issuers are allowed to offer and sell securities to the public without a separate prospectus for each act of offering.
    • The prospectus (often as part of a registration statement) may be used to offer securities for up to several years after its publication .
    • Shelf offerings, due to their purposefully time-constrained nature, are examined far less rigorously by those authorities, compared to standard public offerings.
    • Firms often use universal shelf filings and choose between debt and equity offerings based on the prevailing relative market conditions.

  • Total Debt to Total Assets

    • The debt ratio is expressed as Total debt / Total assets.
    • Debt ratios measure the firm's ability to repay long-term debt.
    • The debt/asset ratio shows the proportion of a company's assets which are financed through debt.
    • If the ratio is greater than 0.5, most of the company's assets are financed through debt.
    • A company with a high debt ratio (highly leveraged) could be in danger if creditors start to demand repayment of debt.

  • Comparing Common Stock, Preferred Stock, and Debt

    • Common stock, preferred stock, and debt are all securities that a company may offer; each of these securities carries different rights.
    • Preferred shares act like a hybrid security, in between common stock and holding debt.
    • However, both common and preferred stock fall behind debt holders when it comes to claims to assets of a business entity should bankruptcy occur.
    • Debt can be "purchased" from a company in the form of a bond.
    • It is a debt security, under which the issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay them interest and/or to repay the principal at a later date, termed the maturity.

  • Advantages of Public Financing

    • The main advantage in seeking public financing is that it offers a larger pool of funding for the company than private financing alone.
    • A publicly traded company is a limited liability company that offers its securities for sale to the general public, typically through a stock exchange, or through market makers operating over the counter markets. .
    • Initial public offerings are used by companies to raise expansion capital, to monetize the investments of early private investors, and to become publicly traded enterprises.
    • When a company lists its securities on a public exchange, the money paid by the investing public for the newly issued shares goes directly to the company (primary offering) as well as to any early private investors who opt to sell all or a portion of their holdings (secondary offering) as part of the larger IPO.
    • Creating multiple financing opportunities, such as equity, convertible debt, and cheaper bank loans

  • Debt to Equity

    • The debt-to-equity ratio (D/E) indicates the relative proportion of shareholder's equity and debt used to finance a company's assets.
    • The formula of debt/equity ratio: D/E = Debt (liabilities) / equity.
    • A similar ratio is the ratio of debt-to-capital (D/C), where capital is the sum of debt and equity:D/C = total liabilities / total capital = debt / (debt + equity)
    • The debt-to-total assets (D/A) is defined asD/A = total liabilities / total assets = debt / (debt + equity + non-financial liabilities)
    • Debt to equity can also be reformulated in terms of assets or debt: D/E = D /(A – D) = (A – E) / E

  • Differences Between Required Return and the Cost of Capital

    • The average cost of capital is calculated via combining the overall average required rate on debt stakeholders and equity stakeholders
    • Investors have options, and each of those options will offer a rate of return.
    • In the above equation, you have D as total debt, E as total equity, Kd as the required return on debt, and Ke as the required return on equity.
    • While this image goes into a bit more detail on the derivation of the cost of equity and the cost of debt, the final three boxes on the right ultimately demonstrate the way in which required rates balance out into a WACC (one for debt, one for equity).
    • Debt tends to be a lower rate because it is paid out first if a company goes bankrupt (i.e. lower risk).

  • Weighted Average Cost of Capital

    • From debt options such as taking out loans or offering long-term corporate bonds to equity such as preferred and common stock, larger organizations tend to find a balance between these options that is optimized for the best possible weighted average cost of capital (WACC) to operate at the scale that creates the best revenue opportunity.
    • What this means is that the overall percentage of the business that is funded by debt (MVd/MVd + MVe) must be multiplied by the cost of debt (Rd),  while similarly the percent funding of equity (MVe/MVd + MVe) must be multiplied by the cost of equity (Re) and added together.
    • The cost of debt is usually fixed, based on the terms of a given bond or loan contract.
    • As a result, the cost of debt is usually both certain and predictable.
    • This diagram is an excellent illustration of how various forms of debt and equity consolidate into broader calculation of debt and equity overall, and how those can combine as a total weighted average cost of capital.

  • Striking Agreements to Avoid Bankruptcy

    • In general, creditors understand that bankruptcy is an option for debtors with excessive debt.
    • A debt restructuring is usually less expensive than bankruptcy.
    • Debt restructurings typically involve a reduction of debt and an extension of payment terms.
    • A debtor and creditor could also agree to a debt-for-equity swap, wherein a company's creditors generally agree to cancel some or all of the debt in exchange for equity in the company.
    • This simplifies the debtor's obligations and can result in faster debt repayment.

  • Types of Private Financing Deals: Going Private and Leveraged Buyouts

    • LBOs use debt to secure an acquisition and the acquired assets service the debt.
    • As the debt usually has a lower cost of capital than the equity, the returns on the equity increase with the increasing debt.
    • LBOs mostly occur in private companies, but can also be employed with public companies (in a so-called PtP transaction, Public to Private).
    • Senior debt: This debt is secured with the assets of the target company and has the lowest interest margin
    • Junior debt: This debt usually has no securities and bears a higher interest margin

  • Collecting Receivables

    • A collection agency is a business that pursues payments of debts owed by individuals or businesses.
    • First-party agencies are oftentimes a subsidiary of the original company to whom the debt is owed.
    • Third-party agencies are separate companies contracted by a business to collect debts on their behalf for a fee.
    • A company may protect against bad-debts losses by purchasing trade credit insurance.
    • This is an example of a letter from a collection agency offering to settle a debt.