Treasury Management: The Practitioner's Guide

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Debt Management

The treasurer is usually called upon to either manage a company’s existing debt or procure new debt. In either case, this calls for a knowledge of the broad variety of debt instruments available, as well as dealing with credit rating agencies. It may also be necessary to have a working knowledge of the accounting, controls, policies, and procedures used to manage debt. This chapter gives a thorough grounding in both key areas.

TYPES OF DEBT

The typical form of corporate debt is either a secured or unsecured loan, and many treasurers do not explore further than these two basic formats. However, there are quite a few alternative forms of debt that bear consideration, based on the duration of a company ’s cash needs, its financial condition, and the presence of various types of collateral. This section contains descriptions of more than a dozen forms of financing. In addition, please refer to Chapter 5 for a discussion of how to reduce working capital, thereby offsetting the need for debt.

Commercial Paper

Commercial paper is unsecured debt that is issued by a company and has a fixed maturity ranging from 1 to 270 days. A company uses commercial paper to meet its short-term working capital obligations. It is commonly sold at a discount from face value, with the discount (and therefore the interest rate) being higher if the term is longer. A company can sell its commercial paper directly to investors, such as money market funds, or through a dealer in exchange ...