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Classification of Bond
Secured
a. Government
Revenue Bond – infra fees are used
Assessment Bond – fees from a group-benefited project are used
b. Corporation
Mortgage – lands and buildings are used
Collateral Trust Bond – securities are used
Equipment Trust Certificates – fleets of physical assets are used
4. Convertibility – exchangeable
a. Convertible – exchanged for securities; more common
b. Exchangeable – for shares in a different firm
Regular Bond
Normal Bond – you pay only the interest every year or semiannually; payment of principal will be
at maturity; if the principal is at 10 years, then pay at the end of the 10th year
5. Terms of Payment – Mode
a. Sinking Fund – setting aside principal; required by the bondholder to set aside using the sinking fund
in a trustee bank
b. Serial Bond – series of maturities; partial payment (e.g. 10 million, 1 million/year – 1 coupon with 1
million will be given to the bondholder)
c. Annuities – periodic I & P at maturity; plain vanilla or regulars
d. Balloon Loan – partial irregular amortization; more of term loans than bonds
e. Income Bond – if interest is earned
1. Interest – to bondholder
2. Commission – to the trustee, dealer or transfer agent
3. Printing Expenses – for the instruments and certificates
4. Advertising Cost
5. Filing Fees with SEC – 1/10 x 1% of the total bonded indebtedness
Bond Issues – aggregate amount of long-term indebtedness divided into smaller units
1. Issuer – debtor
2. Trustee – intermediary; some trustees act as dealers; they buy the bond and sell it to bondholders
3. Bondholder – creditor
Issuer Trustee
(Debtor) (Intermediary)
Bondholder
(Creditors)
Duties of the Trustee
1. Authenticates
2. Protector of bondholders’ rights
3. Oversees of the terms & conditions – disciplines
4. Transfer agent – it does the recording of the purchase and transfers of bonds from one to another
1. Bond Certificate
2. Trust Indenture – lengthy document which stipulates all terms and conditions agreed upon by the
issuer and bondholder