Corporate bonds are issued by companies to raise more capital. Companies use the money to reinvest in their operations, buy other companies, or even pay off older, more expensive loans.
Types Of Corporate Bonds
1. Mortgage Bonds
It is a secured bond issued by a company. With a mortgage bond, the company pledges specific assets as a collateral for the bond. The asset securing the bond is described in detail in mortgage deed, Which is legal document giving the bondholder a lien on a asset. If the company defaults on any of the provision in the bond indenture, bondholders have the power to take control over the asset and sell it to satisfy their claims.
A debenture is a marketable security issued by a business or other organization to raise money for long-term activities and growth. It is a form of debt capital so it is accounted for as debt on the balance sheet of the issuing company.
3. Subordinated debenture bond
An unsecured bond that ranks after secured debt, after debenture bonds, and often after some general creditors in its claim on assets and earnings. In the case of borrower default, creditors who own subordinated debt will not be paid out until after senior bondholders are paid in full.
4. Income Bond
It is a bond that pays interest only if the issuing entity has earned income. The amount of interest paid may vary with the earnings of the entity, so investors are essentially participating in the earnings of the business.
5. Convertible Bond
Convertible bonds are hybrid products, such securities is to provide funding for firms at lower costs with respect to other financial contracts, such as ordinary bonds, mainly because they bear a lower interest coupon payment.
6. Callable Bond
A Callable bond is a type of bond that allows the issuer of the bond to retain the privilege of redeeming the bond at some point before the bond reaches its date of maturity. In other words, on the call date, the issuer has the right, but not the obligation, to buy back the bonds from the bond holders at a defined call price.
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