Corporate Debt Products

Question 1

Mortgage bonds are

Answer 1

Bonds backed by real estate

Question 2

Collateral trust bonds are

Answer 2

Backed by another company’s securities held in trust by the corporation. Common for a parent company to use subsidiary as collateral.

Question 3

Equipment Trust Certificates are

Answer 3

Backed by equipment used by the corporation. Serial maturity is used for depreciation.

Question 4

Unsecured long term bond

Answer 4

Debenture

Question 5

Unsecured short term securities

Answer 5

Commercial paper matures in 270 days and primarily sold to institutional investors.

Question 6

A subordinated debenture is

Answer 6

Lowest priority of all debt in liquidation. Often sweetened by warrant.

Question 7

A guaranteed bond is

Answer 7

Backed by a party other than the issuer (Parent company for subsidiary). Takes on credit rating of the guarantor.

Question 8

An income (adjustment) bond is

Answer 8

Used by a corporation after bankruptcy. Used to relieve obligation on any existing bonds. Trade flat. Will only pay interest and principal if company becomes profitable.

Question 9

A convertible bond is

Answer 9

Offered with a lower coupon rate. Has increased marketability. If it gets converted it replaces an obligation to pay interest.