BONDS or

LONG-TERM
DEBT
 Bonds or Long-term Debt
▹ any long-term promissory note
issued by a firm.
▹ any amount of outstanding debt a
company holds that has a maturity 2

of 12 months or longer.
▹ the legal agreement between the
issuing firm and the bondholders is
called indenture.
 Advantages:
▹ Linked to company
productivity.
▹ Basic control of the firm is 3

not shared with the

creditor.
▹ Longer repayment period.
 Disadvantages:
▹ Restricts company’s monthly
cash flow in the near term.
▹ Interest on long-term debt is
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a permanent burden to the
company.
▹ Much of long-term debt is
tied to collateral.
Basic Types
of Bonds or
Long-term
Debt
1. Debenture Bonds- unsecured loan;
these can be issued only by
companies with the best credit ratings.

2. Subordinated Debenture- (also known

as junior security or subordinated
loan). Is a loan or security that ranks
below other loans.
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3. Income Bonds- pay interest only if
the issuing company has earnings.

4. Mortgage Bonds- a pledge of

certain assets, such as real
property, for a loan.

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 SUBCLASSIFICATION OF
MORTGAGE BONDS:
a) First Mortgage Bonds
b) Second Mortgage Bonds
c) Blanket or General
Mortgage Bonds
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d) Closed-end Mortgage Bonds

e) Open-end Mortgage Bonds
f) Limited Open-end Mortgage
Bonds
 RETIREMENT OF BONDS
▹ repurchase of bonds from investors
that had been previously issued.
▹ The issuer retires bonds at the
scheduled maturity date of the
instruments or 9

▹ if the bonds are callable, the issuer

has the option to repurchase the
bonds earlier.
▹ once bonds are retired, the issuer
eliminates the bonds payable on its
books.