Corporate bonds that are backed by the full faith and credit of the company, but have a lower priority than debentures are subordinated debentures.
These debt securities will pay a higher rate, but are lower in the creditor ladder should the company need to liquidate.
The bonds pay a stated rate of interest and a yield to maturity. Some may be callable and many are rated below investment grade - but not all. A rating below investment grade is known as a junk bond.
Subordinated debt could be issued by large or small corporations. If the company pays on the bonds timely, investors can realize a very attractive and above market rate of return.
http://www.aitraining.com/subordinated.htm
Tuesday, August 21, 2007
Tuesday, August 7, 2007
Putable Corporate - Putable Bonds
A putable bond is one where the investor reverses the process and timing of when a bond is redeemed prior to maturity.
Similar to a callable bond, it will have a set date (or dates), with redemption prices - but the investor is the one who can exercise the feature. This gives the investor a big advantage over his interest rate and market risk on his corporate bond.
If interest rates decline, normally a bond price would decline. However, having a putable bond (assuming it is eligible now) can be redeemed away and the bond holder can take advantage of the higher interest rates in other corporate issues at that time.
These are fairly uncommon bonds and can have a low credit rating, but a putable bond can work to your advantage.
http://www.brokerjobs.com/bondyield.htm
Similar to a callable bond, it will have a set date (or dates), with redemption prices - but the investor is the one who can exercise the feature. This gives the investor a big advantage over his interest rate and market risk on his corporate bond.
If interest rates decline, normally a bond price would decline. However, having a putable bond (assuming it is eligible now) can be redeemed away and the bond holder can take advantage of the higher interest rates in other corporate issues at that time.
These are fairly uncommon bonds and can have a low credit rating, but a putable bond can work to your advantage.
http://www.brokerjobs.com/bondyield.htm
Callable Corporate - Call Bonds
Many issues of corporate bonds are callable by the corporation. This feature is put in to allow the issuer to call back the bonds early and refinance the debt at a lower rate.
Generally callable issues carry more risk to the investor. This is because if the bond is redeemed early, the investor will most likely have to reinvest at lower interest rates.
Because of this uncertainty, these issues tend to be offered at a higher yield or they are called at a premium over par. If the corporate issue is called above the price an investor paid - their yield to call or YTC will be higher.
Bonds can be called as a "one time" or on set dates or even ongoing after the first date. As long as the provisions are disclosed, the dates and prices are at the company's discretion.
http://www.aitraining.com/ytc.htm
Blog forum questions or feedback is welcome.
Generally callable issues carry more risk to the investor. This is because if the bond is redeemed early, the investor will most likely have to reinvest at lower interest rates.
Because of this uncertainty, these issues tend to be offered at a higher yield or they are called at a premium over par. If the corporate issue is called above the price an investor paid - their yield to call or YTC will be higher.
Bonds can be called as a "one time" or on set dates or even ongoing after the first date. As long as the provisions are disclosed, the dates and prices are at the company's discretion.
http://www.aitraining.com/ytc.htm
Blog forum questions or feedback is welcome.
Monday, August 6, 2007
Convertible Corporate Debt
A convertible bond is one where the bondholder can convert their bond into shares of common stock of the company. This feature gives the investor the chance to own stock in the company at any point they wish.
A benefit to this type of debt security is if interest rates rise, bond prices go down - but convertible issues tend to trade closer to par because of the conversion feature.
Each bondholder can convert based on a fixed conversion price and the par value amount of bonds they own. If an investor owns a $1000 bond and the conversion price is $50, they could own 20 shares of stock in that company (1000 divided by 50).
The value and timing of this switch could be based on the market value of the bond to sell as is and the value of the common stock in the market.
If the stock price is higher (including the shares that could be owned) against the bond, then converting may be a good option at a given time.
These debt investments are dynamic bonds and can add income and versatility to most portfolios.
Post here on blog for feedback or questions.
http://www.brokerjobs.com/convertiblebond.htm
A benefit to this type of debt security is if interest rates rise, bond prices go down - but convertible issues tend to trade closer to par because of the conversion feature.
Each bondholder can convert based on a fixed conversion price and the par value amount of bonds they own. If an investor owns a $1000 bond and the conversion price is $50, they could own 20 shares of stock in that company (1000 divided by 50).
The value and timing of this switch could be based on the market value of the bond to sell as is and the value of the common stock in the market.
If the stock price is higher (including the shares that could be owned) against the bond, then converting may be a good option at a given time.
These debt investments are dynamic bonds and can add income and versatility to most portfolios.
Post here on blog for feedback or questions.
http://www.brokerjobs.com/convertiblebond.htm
Secured Corporate Debt
Corporate bonds that are backed by an asset of the company are known as secured.
Many companies issue these that are either in a difficult credit situation where a rating would be low if they issued straight debentures or they have large inventories of assets that can be used to back a secured bond.
Secured corporate investments tend to have a higher rating and lower yield than similar debenture issues because of the asset protection of them.
Types of issues:
Collateral Trust Certificate - These bonds are backed by a company's collateral such as other investments they hold for themsleves (stocks and bonds) or cash.
Equipment Trust Certificate - These secured debt securites are backed by a company's equipment such as airlines, railroads and other large entities that have expensive equipment that can be used.
Mortgage Bonds - These are backed by real estate holdings of a company's portfolio and assets.
http://www.aitraining.com/secured.htm
Many companies issue these that are either in a difficult credit situation where a rating would be low if they issued straight debentures or they have large inventories of assets that can be used to back a secured bond.
Secured corporate investments tend to have a higher rating and lower yield than similar debenture issues because of the asset protection of them.
Types of issues:
Collateral Trust Certificate - These bonds are backed by a company's collateral such as other investments they hold for themsleves (stocks and bonds) or cash.
Equipment Trust Certificate - These secured debt securites are backed by a company's equipment such as airlines, railroads and other large entities that have expensive equipment that can be used.
Mortgage Bonds - These are backed by real estate holdings of a company's portfolio and assets.
http://www.aitraining.com/secured.htm
Debenture Bonds
A corporate bond that is backed by the full faith and credit of the company is known as a debenture. These bonds are rated based on their own credit quality. AAA is the highest rating a debenture can receive.
These debt securities trade above the corresponding treasury of the same maturity. If the bond is rated lower, the spread is wider and more attractive.
This is the biggest area of the corporate debt market. Debentures account for more bond issuance than any other corporate debt security. The yields are generally higher on these than that of treasuries, municipals or government agency bonds.
A portfolio rich in non secured corporates can add current income and a higher yield to an investors holdings.
Certain brokerage firms will specialize in debenture issues and some may not. Normally the investing amount is $1000 minimum, but most securities firms require a higher minimum like $10,000 or $25,000. Many of these firms sell most of their corporate bonds to institutions or other brokerage firms.
Post questions or additional feedback on this blog
These debt securities trade above the corresponding treasury of the same maturity. If the bond is rated lower, the spread is wider and more attractive.
This is the biggest area of the corporate debt market. Debentures account for more bond issuance than any other corporate debt security. The yields are generally higher on these than that of treasuries, municipals or government agency bonds.
A portfolio rich in non secured corporates can add current income and a higher yield to an investors holdings.
Certain brokerage firms will specialize in debenture issues and some may not. Normally the investing amount is $1000 minimum, but most securities firms require a higher minimum like $10,000 or $25,000. Many of these firms sell most of their corporate bonds to institutions or other brokerage firms.
Post questions or additional feedback on this blog
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