Unsecured

Also called Debentures are backed only by the good name (i.e the promise) of the issuer.
If they do not meet their obligations there are no assets to liquidate.


These have a high credit rating
They rely soley on the company's promise to pay and are not backed up by any physical assets
This promise is known as "full faith and credit"
The order of pay out should the company default is: secured bond holders, unsecured bond holders, equity shareholders


Unsecured bonds will normally have a higher coupon than equivalent secured bonds
Companies sometimes issue debentures when they do not have enough assets to collaterise into a secured bond issue


The US government is the biggest issuer of debentures.


Secured

These have low credit risk
By combining bank balance sheet assets and packaging them into a security




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