Fixed Income: What's the difference between the "debt payback period" and the "premium payback period?"

CFA Level II
#1

Fixed Income: What’s the difference between the “debt payback period” and the “premium payback period?”

#2

Premium Payback relates to Convertible Bonds. = Premium Paid to acquire bond / Favorable Income differential. Favorable Income differential = [Coupon on Bond - (Dividend / Share * Conversion Ratio)]/Conversion Ratio Debt Payback period -> relates to the Credit Ratings Chapter. (S&P related) Amount of time it will take to payback debt. = Total Debt / Discretionary Cash Flow Discretionary Cash Flow ---- Free Operating Cash Flow= CFO - CapEx Discretionary Cash Flow = Free Operating Cash Flow - Cash Dividends Paid.

#3

Quite sure premium payback period relates to convertible bonds Market conversion permium per share divided by favourable income difference per share Debt payback period is one of the ratios used by the S&P in their analyis of debt. I belive it is total debt divided by discretionary cashflow.

#4

awesome, thanks. brutal formulas!