Corporate Bonds B Secured BONDS Vs. Unsecured BONDS

Question 1

SECURED BONDS

Answer 1

Backed by collateral (assets of the issuer)

Agreement exists that the collateral will be sold off to pay the debt if the bond defaults

Usually have lower yields

Types of secured Bonds;
Mortgage Bonds- backed by real estate
Equipment Trusts- Usually transportation companies use ass it’s like planes, trucks,etc.
Collateral Trusts- Back by financial assets such as stocks or bonds an outside trusty oversees this
Guaranteed bonds- backed by a parent company

Question 2

UNSECURED BONDS

Answer 2

Backed by the issuers “good name and credit”

Riskier than Secured Bonds

Offer higher interest rate (higher yield) to attract investors

💜2 TYPES OF UNSECURED BONDS 💜

💜DEBENTURES- An indenture or written agreement promises that issue or will pay semi annual interest payments and par value at maturity💜

💜INCOME BONDS- offers a promise to pay if business is good. These are only suitable for high risk investors💜

Question 3

💜Priority of Claims in Liquidation💜

Answer 3

💜1. Secured Claims (includes secured bonds)

💜2. Unsecured Claims
Priority Claims
• Admin Expenses for bankruptcy
• unpaid wages due to workers (up to $10,000 per person)
• unpaid contributions to employee benefit plans(up to $10,000 per person)
• customer deposits for personal, family, or household use(Up to $1800)
• Taxes
General Claims ( Includes Debentures which are unsecured Corporate Bonds)
• Senior unsecured debt
• Subordinated unsecured debt
💜3. Preferred shareholders
💜4. Common shareholders