A corporate bond is a contract between a company and an investor.
The investor lends the company a principal amount in return for the principal amount to be paid back at a future date, plus interest.
Corporate debt can be secured or unsecured.
The loans issued by companies go under various names
- loan stock
- industrial debentures
This is a very strong market in the US. In Europe as a generalisation the corporate bond market is weaker, being overshadowed by the government and public sector bond market. Corporate bonds can be quite long dated - this appeals to pension funds and life assurance companies.
Debentures are corporate bonds which are backed by security, for example land and buildings. If the issuer goes into liquidation, these assets can be sold to repay the bondholders. Because debentures are more secure, the rate of interest is lower (less risk, lower interest rate)
Corporate bonds may be secured or unsecured. The majority are unsecured.
Almost all businesses operate with a financing structure that is a mixture of equity and debt finance
The debt finance is almost always in the form of issuing bonds.
The majority of corporate bonds issued by international companies are unsecured
Corporate bonds can be divided into four different sectors:
Utility, Financial, Industrial and Transporatation.
US Corporate Bonds are classified by their remaining maturity
Shorts - life up to 5 years (marginally sensitive to interest rates)
Mediums - life between 5 to 15 years
Longs - life of 15 years or over (very sensitive to interest rates)
US corporate bonds typically issued in amounts of 1000
Corporate Bonds can be either Debendures or Convertibles
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