Claim is on proceeds from sale of mortgaged assets if

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Unformatted text preview: fault when interest payments are missed, because they are contingent only on earnings being available. Mortgage bonds Secured by real estate or buildings. Claim is on proceeds from sale of mortgaged assets; if not fully satisfied, the lender becomes a general creditor.The first-mortgage claim must be fully satisfied before distribution of proceeds to second-mortgage holders, and so on. A number of mortgages can be issued against the same collateral. Collateral trust bonds Secured by stock and (or) bonds that are owned by the issuer. Collateral value is generally 25% to 35% greater than bond value. Claim is on proceeds from stock and (or) bond collateral; if not fully satisfied, the lender becomes a general creditor. Equipment trust certificates Used to finance “rolling stock”—airplanes, trucks, boats, railroad cars. A trustee buys such an asset with funds raised through the sale of trust certificates and then leases it to the firm, which, after making the final scheduled lease payment, receives title to the asset. A type of leasing. Claim is on proceeds from the sale of the asset; if proceeds do not satisfy outstanding debt, trust certificate lenders become general creditors. Unsecured Bonds Secured Bonds debentures subordinated debentures income bonds mortgage bonds collateral trust bonds equipment trust certificates See Table 6.3 zero- (or low-) coupon bonds junk bonds floating-rate bonds extendible notes putable bonds See Table 6.4 that the first three types—debentures, subordinated debentures, and income bonds—are unsecured, whereas the last three—mortgage bonds, collateral trust bonds, and equipment trust certificates—are secured. Table 6.4 describes the key characteristics of five contemporary types of bonds: zero-coupon or low-coupon bonds, junk bonds, floating-rate bonds, extendible notes, and putable bonds. These bonds can be either unsecured or secured. Changing capital market conditions and investor preferences have spurred further innovations in bond financing in recent years and will probably continue to do so. International...
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This document was uploaded on 01/19/2014.

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