Lesson: Capital Structure

In this lesson, Nick Palazzolo, CPA, dives into the intricate details of capital structure terminology that can be pivotal for anyone navigating the complex world of corporate finance. He starts with a fundamental understanding of debentures, explaining their nature as unsecured obligations, and draws a comparison to secured debts, like mortgages. Nick illuminates why unsecured debts like credit cards typically carry higher interest rates than secured loans. He then explores the hierarchy of debt through discussions on subordinated debentures and junk bonds, clarifying the risk-return relationship intrinsic to bond ratings. Touching on the practical impacts witnessed during real economic events, he also breaks down the concepts of commercial paper and mortgage bonds, tying them back to the 2008 financial crisis. Nick further elucidates on the securitization of debt and how it's leveraged in the financial world, ultimately providing a comprehensive framework to understand the role and evaluation of various debt instruments in a company's capital structure.