Unit 2 4 Types of Corporate Bonds

Question 1

What are the types of Bonds that are Secured?

Answer 1

1- Mortgage bonds - secured by

Question 2

What is a Secured Bond?

Answer 2

Bonds that are Secured by a corporate asset (in case of default/bankruptcy, lender will collect the asset).

Question 3

What is a Mortgage Bond?

Answer 3

Bonds secured by mortgages/ real estate the corporation owns. Buildings, etc.

Question 4

What is a Collateral Trust Certificate?

Answer 4

Bonds backed by the stocks and bonds the corporation owns - in other companies.

Question 5

What is an Equipment Trust Certificate?

Answer 5

Backed by the issuing companies equipment that they use. Typically issued by transportation companies, e.g., a railroad, a trucking co., an airline. These are also known A.K.A as rolling stock bonds. Rolling stock bonds cannot be issued by equipment manufacturers. Only equipment users.

Question 6

What are Unsecured Bonds?

Answer 6

Bonds backed by a promise. Backed by the good faith and credit of the corporation.
1- The Debenture
2- Subordinated Debenture

Question 7

What is the difference between a Debenture and a Subordinated Debenture? They are both Unsecured?

Answer 7

The difference is in the order of LIquidation. Debenture bonds are senior to Subordinate Debenture bonds. Both are senior in liquidation to Preferred stock and Common stocks.