A bankruptcy claim is a claim filed by the debtor (most common) or on behalf of creditors (less common) against an individual or organization, in an effort to recoup a portion of what they are owed, when the individual or organization is legally declared as being unable to or having an impaired ability to pay its creditors.
All of the debtor's assets are measured and evaluated, whereupon the assets are used to repay a portion of outstanding debt. Upon the successful completion of bankruptcy proceedings, the debtor is relieved of the debt obligations incurred prior to filing for bankruptcy.
Bank debt are debt financing obligations issued by a bank or similar financial institution to a company or individual, and are also known as senior bank loans. They are usually secured and come with the right given to the lender to retain possession of the borrower's assets, pending discharge of the debt.
At the time the loan is made, there typically tend to be no other existing liens on the borrower's assets, or at least not on any of the assets being secured by the bank debt. Thus, if the borrower should enter a state of bankruptcy in the future, the assets used to secure the bank debt must be used to repay that debt first. Additionally, the bank debts interest and principal payments take precedence over other junior sources of debt financing, such as other creditors, preferred stockholders or common stockholders.
A debt security is also known as a fixed income security and includes any debt instrument that can be bought or sold between two parties and which has basic terms defined, such as notional amount (borrowed amount), interest rate and maturity/renewal date. These securities provide interest payments as compensation for the use of an investor's (ie, lender's) funds. The payments usually last until the maturity date, or upon the sale of the security, at which point the notional amount is repaid.
Debt securities include government bonds, corporate bonds, money-market instruments, CDs, municipal bonds, preferred stock, collateralized securities (such as CDOs, CMOs) and zero-coupon securities. The interest rate on a debt security is largely determined by the perceived repayment ability of the borrower; higher risks of payment default almost always lead to higher interest rates. Furthermore, debt securities on the whole are safer investments than equity securities, but riskier than cash. They are typically classified and grouped by their level of default risk, the type of issuer and income payment cycles.
Illiquid listed or privately issued warrants, structured products, derivatives structures linked to interest rates, commodities, single stock or equity indices.
A warrant is a derivative security that gives the holder the right to purchase a certain amount of securities (usually equity) from the issuer at a specific price and within a certain time frame. Warrants are often included in a new debt issue, such as a bond or preferred stock, as a "sweetener" to entice investors.
The main difference between warrants and call options is that warrants are issued and guaranteed by the company, whereas options are exchange instruments and are not issued by the company. Also, the lifetime of a warrant is often measured in years, while the lifetime of a typical option is measured in months.
Convertible bonds are bonds with the right to convert to a predetermined amount of ordinary shares or preference shares, instead of getting cash repayment. This conversion occurs at a predetermined price and a stated time in the future. The terms are set at issue but are executed usually at the discretion of the bondholder. Convertible bonds are also sometimes called "CVs".
From the investor's perspective, a convertible bond has a value-added component built into it; it is essentially a bond with a stock option hidden inside. Thus, it tends to offer a lower rate of return in exchange for the value of the option to trade the bond into stock.
Illiquid listed or private company preferred shares, convertible preferred shares, restricted or unregistered preferred shares, minority or majority preferred share blocks.
Preferred stocks (also called preferred shares or preference shares) are a class of ownership in a corporation whose holders have a higher claim on the assets and earnings than common stockholders. This results in them being guaranteed priority in the payment of dividends (and/or assets in the cases of corporate dissolution), up to a certain amount, before the common shareholders are entitled to anything. However, preferred shareholders do not have the right to vote in corporate elections or share in corporate profits.
The precise details as to the structure of preferred stock are specific to each corporation. However, the best way to think of preferred stock is as a financial instrument that has characteristics of both debt (fixed dividends) and equity (potential appreciation). Additionally preferred stocks rank between bonds and common stock in priority of claims on the company.
Illiquid listed or private company shares, restricted or unregistered shares, minority or majority share blocks. Limited partnership interests (hedge funds, private equity, venture capital).
Common stocks are equity securities issued as ownership shares in a publicly held corporation. As a group, common stock shareholders can exercise control due to having voting rights, which allows them to elect a board of directors and vote on corporate policy and, based on their proportionate ownership, they may receive dividends as well as enjoying any capital appreciation.
If the company goes bankrupt, the common stockholders are junior to all other classes of securities so will not receive their money until the bondholders, preferred shareholders and other debt holders have been paid in full from the leftover assets. This makes common stock riskier than debt or preferred shares. The upside to common shares is that they usually outperform bonds and preferred shares in the long run. Also, in the U.K. common stock is sometimes called "ordinary shares".