Corporate Bond
Debt obligation issued by a corporation. An instrument written under seal
whereby a corporation acknowledges a stated sum is owed, which it will
repay at a specified date. It also obligates itself to pay a stipulated
amount of interest to the bondholders for the privilege of using their
money.
The contract that sets forth the promises of a corporate bond issuer and the rights of investors is called a bond indenture.
Municipal Bond
A bond offered by a state or local government to pay for special projects
such as highways or sewers. The interest that investors receive is exempt
from some income taxes. Also called muni bonds.
Revenue Bond
A bond issued by a municipality to finance either a project or an enterprise
whereby the issuer pledges to the bondholders the revenues generated by
the operating projects financed. For example, revenue bonds may be issued
for the construction of a new hospital or the extension of sewer lines
to a new housing development. In these cases bondholders would receive
the revenues from the hospital's operations or the sewer taxes from the
new housing development.
Bearer Bond
A bond made payable to its holder. The opposite of a registered bond.
Bearer Form
A note or bond payable to the bearer of the instrument. Coupon bonds fall
into this classification.
Coupon Bond
A negotiable bond, the regular interest on which is payable to the person
who clips the coupon and deposits it at his bank for collection. Upon
maturity, the bearer is paid the face value of the security.
Registered Bond
A bond which is registered on the books of the issuing corporation in the
owner's name and is negotiable only when endorsed by the registered owner.
Most bonds held by pension funds are in the "nominee" name of
a bank or in a "street" name held by a broker to make them readily
negotiable and to simplify the collection of interest.
Serial Bond
Corporate bond arranged so that specified principal amounts become due
on specified dates.
Step-up Bond
A bond that pays a lower coupon rate for an initial period which then increases
to a higher coupon rate.
Term Bond
A bond whose principal is payable at maturity. Often referred to as a bullet-maturity
bond or simply a bullet bond.
Callable Bond
A bond issue, all or part of which may be redeemed by the issuing corporation
under specific terms before maturity. The term callable also applies to
preferred shares that may be redeemed by the issuing company.
Collateral Trust Bond
A bond in which the issuer (often a holding company) grants investors a
lien on stocks, notes, bonds, or other financial asset as security. A
collateral trust bond is thus backed by other securities, which may be
controlled by the issuer and deposited with a trustee. In the last analysis,
collateral trust bonds are as secure as the creditworthiness of the issuer
and the real market value of the deposited securities.
Convertible Bond
A bond that is convertible into the common
stock of a corporation at a prescribed price or ratio at the option
of the holder. The holder of a convertible bond is a creditor of the issuer,
who may share in the additional profits over and above the coupon's rate
of the bond, if the company prospers. Also called a debenture.
The conversion price is the price for which a convertible bond of a corporation may be exchanged for stock of the same corporation.
General Mortgage Bond
A bond secured by a blanket mortgage on the issuer's property but which
may be outranked by one or more other mortgages.
Guaranteed Bond
A bond which has interest or principal or both, guaranteed by a company
other than the issuer.
Insured Bond
A municipal bond backed both by the credit of the municipal issuer and
by commercial insurance policies.
Limited-tax General Obligation Bond
A general obligation bond that is limited as to revenue sources.
Mortgage Bond
A bond in which the issuer has granted the bondholders a lien against the
pledged assets.
Payment-In-Kind (PIK) Bond
A bond that gives the issuer an option (during an initial period) either
to make coupon payments in cash or to give the bondholder a similar bond.
Refunded Bond
A bond that may originally have been issued as a general obligation or
revenue bond but that is now secured by an "escrow fund" consisting
entirely of direct US government obligations that are sufficient for paying
the bondholders. Also called a pre-refunded bond.