Sound Global

[Boon]

hmm but i thought they have rather low secured debt, vs total debt and total assets? and they do have the ability to borrow onshore at a much lower rate. In any case, the new bonds are currently trading slightly below par now (i.e. the yields have gone higher than 11.875%).

Paiseh, could you also explain why you think that bank debt is the worst debt compared to other forms of debt? Not very familar with the differences.

Thanks!

Debt can be structured as bank debt and funded debt. Bank debt is the worse debt because it it is due on demand. It is the most risky debt. Funded debt e.g. bond and notes are never be called, as long as interest continue be paid. It is due on maturity.

SoundGlobal debt is structured as
- bank debt (secured and un-secured) of RMB 432 Mils
- CB of RMB 818 Mils
- secured borrowing from IFC of RMB 420 Mils (offshore)

Total debt RMB 1670 Mils vs cash reserve of RMB 2074 Mils, net cash position.

Approx 50% in bank debt (onshore and offshore), while funded debt is another 50%. This is the debt structure the management feel comfortable with.

My undestanding of Bank Debt and Funded Debt is different :

Bank Debt is money owed to banks, rather than other types of lenders. It could be secured or unsecured, and it could be long term or short term.

Funded Debt is a company's debt obligations including bank loans, bonds, debentures and other types of debt instruments with maturity date of more than one year.

Therefore, IMO, a long term Bank Debt (with maturity date of more than one year) could also be considered a form of Funded Debt.

[CityFarmer]

hmm but i thought they have rather low secured debt, vs total debt and total assets? and they do have the ability to borrow onshore at a much lower rate. In any case, the new bonds are currently trading slightly below par now (i.e. the yields have gone higher than 11.875%).

Paiseh, could you also explain why you think that bank debt is the worst debt compared to other forms of debt? Not very familar with the differences.

Thanks!

Debt can be structured as bank debt and funded debt. Bank debt is the worse debt because it it is due on demand. It is the most risky debt. Funded debt e.g. bond and notes are never be called, as long as interest continue be paid. It is due on maturity.

SoundGlobal debt is structured as
- bank debt (secured and un-secured) of RMB 432 Mils
- CB of RMB 818 Mils
- secured borrowing from IFC of RMB 420 Mils (offshore)

Total debt RMB 1670 Mils vs cash reserve of RMB 2074 Mils, net cash position.

Approx 50% in bank debt (onshore and offshore), while funded debt is another 50%. This is the debt structure the management feel comfortable with.

My undestanding of Bank Debt and Funded Debt is different :

Bank Debt is money owed to banks, rather than other types of lenders. It could be secured or unsecured, and it could be long term or short term.

Funded Debt is a company's debt obligations including bank loans, bonds, debentures and other types of debt instruments with maturity date of more than one year.

Therefore, IMO, a long term Bank Debt (with maturity date of more than one year) could also be considered a form of Funded Debt.

The key difference between funded debt and bank debt is one is due on demand, the other is due on maturity

Bank debt with maturity of more than one (1) year is still due on demand, if bank decide to do so.

So whatever name we used, current and non-current bank debt still due on demand. That make them very risky

[freedom]

I don't understand how could a bank debt with maturity of more than one year can be called on demand.

does that mean that all mortgage can be called by bank on demand?

that sounds dangerous.

[CityFarmer]

I don't understand how could a bank debt with maturity of more than one year can be called on demand.

does that mean that all mortgage can be called by bank on demand?

that sounds dangerous.

It sound dangerous, and it is dangerous

It will not happen as regular event, but it may happen when the company need it the most. Bank will ask for its money back at the first sign of trouble. It will happen for secured bank debt when the collateral devalue. It is reasonable to image that worse for un-secured bank debt.

[freedom]

In that sense, funded debt also can be called on demand as normally there are clauses such that when the co defaults on any obligation, the bonds can be called immediately.

[mrEngineer]

Debt is always dependent on its covenants. If d/e ratio is not met, bonds can be called back as well. Working capital debt or line of credit usually do not expire upon the contracts entered. But usually the contracts expire quite fast like 1 year. Correct me if I m wrong

[CityFarmer]

In that sense, funded debt also can be called on demand as normally there are clauses such that when the co defaults on any obligation, the bonds can be called immediately.

You are right, but not entirely

Funded debt will not be called if company able to continue service the interest and other obligations

The same may not be true for bank debt.

---

Debt is always dependent on its covenants. If d/e ratio is not met, bonds can be called back as well. Working capital debt or line of credit usually do not expire upon the contracts entered. But usually the contracts expire quite fast like 1 year. Correct me if I m wrong

I do not recall any bond are conditioned on d/e ratio. If you come across any, please enlighten me

[mrEngineer]

http://www.ehow.com/info_8605731_common-...nants.html

[l0nEr]

Eh, actually its quite common for bonds to have covenants based on interest coverage [Fixed Charge coverage ratios] or leverage ratios (might be over asset). There is also a difference between maintenance covenants (test once a year) and incurrence covenants (and test when adding new debt). Typically high yield bonds use incurrence covenants to allow the company some flexibility.

Im just curious is there long-term bank debt that is callable on demand (except when a bank covenant is breached).
If there is such a case, based on accounting rules, it would be classified as short-term debt. All bank debt/bonds that have broken their covenants (which results in them being callable on demand) are classified as short-term debt based on accounting rules.

[CityFarmer]

Eh, actually its quite common for bonds to have covenants based on interest coverage [Fixed Charge coverage ratios] or leverage ratios (might be over asset). There is also a difference between maintenance covenants (test once a year) and incurrence covenants (and test when adding new debt). Typically high yield bonds use incurrence covenants to allow the company some flexibility.

I had gone thru few bond issues, due to my holdings. None of them are base on interest coverage etc.

Interest ratio, leverage ratio are important in rating of the bond issue, and will affect the yield, but i do not see them as obligations in bond issued

Im just curious is there long-term bank debt that is callable on demand (except when a bank covenant is breached).
If there is such a case, based on accounting rules, it would be classified as short-term debt. All bank debt/bonds that have broken their covenants (which results in them being callable on demand) are classified as short-term debt based on accounting rules.

Let bring back the discussion to our context. I had highlight call on demand for bank debt (at the first sign of trouble), rather than at bank free will. So we are aligned.