Does a change in market value of debt change the issuer's blance sheet

CFA Level I
#1

I was under the impression that it was only the yield at which the debt was initially issued ( the effective interest rate) that was used to amortise the debt liability. If the company’s debt goes though a credit downgrade, or anything that would change the market value of the debt, would that have any consequence on the company’s balance sheet? I don’t see how it would. (given they are not going to repurchase the debt)

I ask because I was doing a problem that wanted to how a decrease in the credit rating would affect the reporting of long-term debt for a firm that reports long-term debt at market value… I didn’t know that was a thing. I am only aware of the method where the bond liablility is amortised with the effective interest rate. If anyone has seen this alternative method, please direct me to where it is discussed.

#2

Long-term debt appears in the Balance Sheet as the principal amount is. This amount does not change unless it is amortized or completely paid at the end of the bond life. Changes in the market interest rate or changes in the credit grade can make the bond price to rise or decrease and increase or decrease the probability to call the bond or put the bond (in the case of embbeded bonds).

#3

Exactly there is no change in issuer’s BS according change in market IR if we are talking about non-convertible bond issue with no add-ons (warrants etc).

#4

thanks guys! I’m glad there is not a whole new can of worms to open at this point.