Bankruptcy
A legal proceeding involving a person or business that’s unable to repay outstanding debts. The bankruptcy process begins with a petition filed by the debtor or on behalf of creditors.
All of the debtor’s assets are measured and evaluated, whereupon the assets are used to repay a portion of outstanding debt. Upon the completion of bankruptcy proceedings, the debtor is relieved of the debt obligations incurred before filing for bankruptcy.
Bankruptcy offers an individual or business a chance to start fresh by forgiving debts that can’t be paid while offering creditors a chance to obtain some measure of repayment based on what assets are available.
Basis Point
A unit equal to 1/100th of 1% and used to denote the change in a financial instrument. The basis point is commonly used for calculating changes in interest rates, equity indexes and the yield of a fixed-income security.
The relationship between percentage changes and basis points can be summarized as follows: 1% change equals 100 basis points, and 0.01% equals 1 basis point. A bond whose yield increases from 5% to 5.5% is said to increase by 50 basis points; or interest rates that have risen 1% are said to have increased by 100 basis points.
Hotel industry example: Red Lion’s hotel direct operating profit for the fourth quarter of 2007 increased 19.4% to $5.8 million from the prior-year period, a 205 basis-point increase to 15.7% versus 13.6% in 2006.
Bid-Ask Spread
The amount by which the ask price exceeds the bid. This is the difference in price between the highest price a buyer is willing to pay for an asset and the lowest price a seller is willing to sell it. If the bid price is $20 and the ask price is $21, then the bid-ask spread is $1. The size of the spread from one asset to another will differ mainly because of the difference in liquidity of each asset.
Bondholder
The owner of a government or corporate bond. Being a bondholder is often considered safer than being a shareholder because if a company liquidates, it must pay its bondholders before it pays its shareholders. Being a bondholder entitles one to receive regular interest payments, if the bond pays interest, usually semiannually or annually, as well as a return of principal when the bond matures.
Bonds are perceived as being low risk, but the level of risk depends on the type of bond in question. For example, holding corporate bonds will yield higher returns than holding government bonds, but they come with greater risk. Bonds also are subject to interest rate risk, reinvestment risk, inflation risk, credit/default risk, liquidity risk and rating downgrades. An advantage of being a bondholder is that some bonds are exempt from federal, state or local income taxes.
Boutique
Unique in style, design-centric, either independent or affiliated with a smaller brand system, with 40 to 300 guestrooms.
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