Secured versus unsecured bonds, Financial Management

Along the dimension of security, bonds can be classified into unsecured (straight) bonds and secured (mortgage) bonds. Unsecured bonds have no charge on any specific assets of the company while secured bonds carry a fixed or floating charge on the assets of the company.

The distinction between secured and unsecured bonds becomes relevant in case the issuer defaults in the payment of interest or principal. The secured bondholders are entitled to take possession of the security given to them and realize their dues by selling these assets (typically land, building, machinery, etc.). This right is valuable to the bondholders provided the security is worthy, easily saleable and has not been simultaneously given as security to other creditors as well. All these factors have to be examined while evaluating a secured bond. Unsecured bonds are not backed by any such security, but the bondholders need not worry about this if they believe that the company is financially very sound and is unlikely to default.

Posted Date: 9/8/2012 4:26:41 AM | Location : United States







Related Discussions:- Secured versus unsecured bonds, Assignment Help, Ask Question on Secured versus unsecured bonds, Get Answer, Expert's Help, Secured versus unsecured bonds Discussions

Write discussion on Secured versus unsecured bonds
Your posts are moderated
Related Questions
Principles of Good Regulation While performing its functions, the FSA needs to take into account certain matters which are termed the ‘principles of good regulation'. The matte

discuss the applicability of operating cycle and any other financial management in poultry business in uganda

Q. Can you explain Dispersion method? Dispersion method help to assert risk in receiving a return on investment. The greater the potential dispersion, the greater the risk. One

Woody Construction is considering a new 3 year expansion project that requires an initial fixed asset investment

Assume that the treasurer of a company has an extra cash reserve of $1,000,000 to invest for six months. The six-month interest rate is 8% per year in the U.S. and 6% per year in G

how can an operating cycle be applied to a poultry business

How and why does working capital affect the incremental cash flow estimation for a proposed large capital budgeting project?  Explain. Several large projects require additional

Discuss the advantages and disadvantages of the gold standard. Answer:  The benefits of the gold standard include: (I) as the supply of gold is restricted, countries cannot compr

Liquidity risk tends to change as and when there exists a change in the spread between the bid and the ask price. Market liquidity change is a matter of concern f

Calculate annual payments into a savings account: Mr. Jones intends to retire in 20 years at the age of 65. As, yet he has not provided for retirement income, and he wants to