An exercise in bond structure. Jamie and Enkhdari, the new owners of Chicago Powerboat, have decided to expand their operations. They tell their new analyst, Faith, to work with an underwriter to structure $20 million in new 10-year bonds to finance the expansion. Faith has worked with Fernando Merchan, the underwriter from the firm of Dewey, Cheatem and Howe, about the bond characteristics that Chicago Powerboat should consider and what the bonds coupon will be. Though Faith is familiar with the bond characteristics, she is not all that familiar with how the bonds characteristics will affect the coupon on the bond. As well, she needs to get a handle on the advantages and disadvantages of each of those bond characteristics.

Specifically, Should the bond be collateralized?

Should the bond be parri passu or a subordinated issue?

Should they consider a sinking fund?

Should there be a call provision, with specified dates and call prices? Should there be a deferred call with this provision?

What about the make-whole call provision?

Should there be positive covenants and what types?

Likewise, should there be negative covenants, and what types?

What about a conversion feature, even though the firm is not publically traded? Should they consider a floating rate coupon?