Fixed Income MCQ - Fixed Income Section 2

51 A subordinated bondholder recovered some value in bankruptcy without a senior creditor getting paid in full. The most likely explanation is:

All impaired classes get to vote on the reorganization plan. Negotiation and compromise are often preferable to incurring huge legal and accounting fees in a protracted bankruptcy process that would otherwise reduce the value of the estate for all claimants. This process may allow junior creditors (e.g., subordinated bondholders) recover some value even though more senior creditors do not get paid in full.

52 A company has two types of senior secured bonds outstanding- A and B. Bond A has a remaining maturity of 10 years and bond B has a remaining maturity of 1 year. In case of a default:

All claims at the same level of the capital structure are pari passu (on an equal footing).

53 The corporate family rating most likely applies to:

Rating which is for the overall credit worthiness of the organization is called corporate family rating or issuer rating and it usually applies to the senior unsecured debt of the company.

54 An investor wants to buy bonds with an investment-grade rating. Which of the following bonds will he most likely consider?

Among the listed ratings bonds with BBB- will be considered investment grade bond. The other two bonds will be considered non-investment grade bonds.

55 Which of the following statements is most accurate?

The issuer rating is an assessment of an issuer’s overall credit worthiness whereas the issue rating considers a bond’s seniority ranking.