For larger publicly traded firms, an alternative to bank debt is to issue bonds. Generally speaking, bond issues have several advantages. The first is that bonds usually carry more favorable financing terms than equivalent bank debt, largely because risk is shared by a larger number of financial market investors. The second is that bond issues might provide a chance for the issuer to add on special features that could not be added on to bank debt. For instance, bonds can be convertible into common stock or be tied to commodity prices (commodity bonds). In borrowing money, firms have to make a variety of choices including the maturity of the borrowing (short term or long term), whether the debtd should have fixed interest payments or an interest rate tied to market rates (fixed and floating rates), the nature of the security offered to those buying the bonds (secured versus unsecured) and how the debt will be repaid over time. In chapter 9, we will examine how best to make these choices.

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