CTP Capital Structure and Funding 5

Question 1

A company faces a 'debt maturity wall' in 18 months. What is the FIRST action a treasurer should take?

Accepted Answer

Begin refinancing discussions early to avoid forced refinancing in distressed conditions

Answer

Proactive refinancing well before maturity gives the company negotiating leverage, access to better market conditions, and avoids the distress premium lenders charge near-term maturities.

Question 2

Which type of equity offering results in NO new proceeds for the company?

Accepted Answer

Secondary offering by existing shareholders

Answer

A secondary offering involves existing shareholders selling their shares, so proceeds go to those sellers rather than the company, which receives no capital from the transaction.

Question 3

What is the purpose of a 'cross-default' clause in a loan agreement?

Accepted Answer

To trigger a default on one debt instrument if the borrower defaults on any other debt obligation

Answer

A cross-default clause protects lenders by making a default on any debt obligation automatically trigger a default under their agreement, giving them equal standing to accelerate repayment.

Question 4

In project finance, what distinguishes it from traditional corporate finance?

Accepted Answer

Debt is repaid solely from the project's cash flows and secured by project assets, with limited recourse to sponsors

Answer

Project finance is non-recourse or limited-recourse, meaning lenders rely on the project's standalone cash flows and assets for repayment rather than the sponsoring company's balance sheet.

Question 5

A company's stock trades at a 40% discount to book value. What does this signal about equity issuance?

Accepted Answer

Issuing equity at below book value dilutes existing shareholders and may signal market distrust

Answer

Issuing equity below book value transfers value from existing shareholders to new investors and may be interpreted by markets as a negative signal about management's outlook.

Certified Treasury Professional Exam Practice Test

Certified Treasury Professional Exam Practice Test

CTP Capital Structure and Funding 5