Bonds secured by collateral. Pledge of bonds Pledge of bonds

1. The subject of collateral for collateralized bonds can only be uncertified securities, immobilized documentary securities, real estate and monetary claims on liabilities, including monetary claims that arise in the future from existing or future liabilities. Bank of Russia regulations may establish a list of other property (including rights of claim) that may be the subject of pledge for bonds.

2. A pledge agreement, which ensures the fulfillment of obligations under bonds, shall be deemed concluded from the moment their first owner (acquirer) arises the rights to such bonds, and the written form of the pledge agreement shall be considered observed.

3. If the fulfillment of obligations under bonds is secured by a pledge of immovable property (mortgage), the state registration of the mortgage is carried out by the body that carries out state registration of rights to immovable property, after the state registration of the issue of such bonds. For state registration of a mortgage, instead of a mortgage agreement and its copy, as well as a document confirming the occurrence of an obligation secured by a mortgage, a decision registered by the Bank of Russia on the issue of bonds secured by a mortgage and a copy of this decision are submitted. When state registration of a mortgage, as information about the initial mortgagee, the registration record on the mortgage in the unified state register of rights to real estate must contain the state registration number of the bond issue and the date of its state registration, as well as an indication that the mortgagees are the owners of the bonds of the issue with the specified state registration number.

A mortgage record is canceled on the basis of an application from the pledger, to which documents confirming the termination of the mortgage are attached, and if the issue of bonds secured by a mortgage is recognized invalid, a document is attached confirming the Bank of Russia decision to recognize the relevant issue of bonds as invalid.

Placement of bonds secured by a mortgage prior to state registration of the mortgage is prohibited.

In the event that federal law or agreement of the parties establishes requirements for the notarial form of a mortgage agreement, such requirements are deemed to be met subject to notarization of the decision to issue bonds secured by a mortgage.

In the event that federal law establishes requirements for state registration of a mortgage agreement, such requirements are considered met subject to state registration of the decision to issue bonds secured by a mortgage by the body that carries out state registration of rights to real estate.

4. A decision on the issue of collateralized bonds may provide for the procedure and conditions for replacing the collateral for such bonds.

(see text in previous edition)

5. The property that is the subject of a pledge, as well as the sums of money due to the pledger in connection with such a pledge, may serve as security for the fulfillment of obligations under bonds of different issues.

6. If the fulfillment of obligations under bonds is secured by a pledge of securities, the pledger is obliged to fix the encumbrance of the corresponding securities with a pledge with the person who records the rights to these securities before the placement of bonds, and if the security by pledge of securities is provided after the start of the placement of bonds, prior to registration changes made to the decision on the issue of bonds in terms of information on the conditions of such security and on the person providing such security.

By collateral, bonds are divided into collateralized and unsecured.

Secured bonds(secured bonds) are bonds issued by issuers against collateral, i.e. the issuer guarantees the fulfillment of financial obligations both in matters of repayment of the full amount of the debt within the specified period, and in matters of timely payment of the corresponding dividends. Secured Bonds, in turn, are subdivided according to the type of collateral, which can be: physical assets (property), securities, real estate, etc. The issuer, being in extreme economic conditions, makes an acceptable decision for itself.

Provided with physical assets: in the form of property; in the form of equipment (bonds with such a collateral are most often issued by transport organizations that use ships, airplanes, etc. as collateral).

Bonds secured by physical assets (both in the form of real property and in the form of equipment) include the so-called: first pledge bonds; second-mortgage bonds, or second-mortgage bonds. Bonds under the second pledge are in second place after the first pledges and are also called general bonds. Claims on bonds under the second pledge are considered after settlements with holders of bonds under the first pledge, but before settlements with other investors.

The purpose of the collateral is that in the event of bankruptcy or insolvency of the company, the holders of the secured bonds can claim part of the company's assets.

Examples of issue of bonds secured by collateral.

Bonds secured by spiders from Mars.

Singer and composer David Bowie, known for his love of image change, has found a new face - the serious man on Wall Street. He was able to successfully place $ 55 million in bonds secured by future royalties. This is the first such incident in the entertainment industry.

The bonds are issued for a period of 10 years and should bring their owners 7.9% per annum. Their profitability will be provided by royalties for the duplication of old Bowie discs, as well as royalties for the release of new records.

The idea to issue Bowie bonds came to the head of the executive director of the investment bank Fahnestock and Co. David Pullman. The transaction took place in the so-called asset-backed bond market, which is currently growing rapidly. Major US insurance companies bought Bowie's shares. Retail brokerage firms also showed great interest in unusual securities, but did not receive anything, since under the terms of the placement the bonds should not be sold to private individuals.

As a result, $ 55 million, which Bowie would otherwise have received gradually, as deductions from record sales, went to him immediately.

Gazprom: first issue of secured bonds.

On July 23, 2004, Gazprom raised funds in the amount of USD 1.25 billion by placing structured bonds secured by proceeds from export contracts. The bonds are secured by proceeds from gas sales to the Italian company Eni and the Dutch company Gasunie.

The yield on the bonds was 7.201% per annum. The maturity date is February 1, 2020. The Eurobonds are amortized, the redemption of the par value of the securities will begin in the third year after the placement. Partial early redemption of the issue is envisaged.

The joint organizers and bookrunners of the issue were investment banks ABN Amro, Merrill Lynch and Morgan Stanley. The bonds were issued by Gazprom International S. A., registered in Luxembourg.

Gazprom placed secured bonds for the first time in its history. Largely due to this, the rating agencies S&P and Fitch assigned an investment grade rating of BBB- to this issue. Thus, two goals were achieved. First, the cost of the loan was lower compared to the unsecured issue. The new loan became the cheapest in the history of the company.

Second, a bond issue has a broader investor base, since some investors (in particular, American pension funds) can only invest if the issue has an investment rating.

CJSC Mortgage Agent Vozrozhdenie1

By the decision of the extraordinary general meeting of shareholders of CJSC Mortgage Agent Vozrozhdenie 1, adopted on October 27, 2011 No. 5, it was approved to issue non-convertible documentary bonds with mortgage coverage to bearer with obligatory centralized storage of class B, in the amount of 1,140,086 pieces, with a par value of 1 RUB 000 each, due August 10, 2044, placed by private subscription. In this case, the bonds are secured by a mortgage collateral.

"UniCredit may issue € 25bn in secured bonds."

According to Ria Novosti, as of January 25, 2012, the Italian banking group UniCredit SpA plans to issue secured bonds worth up to 25 billion euros in the face of continuing pressure from the debt crisis in the euro area on the liquidity of financial companies. The proceeds from the issue of secured debt securities will be used "for general financing purposes, including financing the group's mortgage business." The bank also does not exclude the preservation of some part of the funds to be used as collateral to receive liquidity from the European Central Bank (ECB). [6].

3.5. Corporate bonds

Like other types of fixed income securities, corporate bonds are obligations to pay the amount of debt and interest on time. The funds raised through the issue of bonds represent the borrowed capital of the enterprise (corporation).

In foreign practice, the issue of bonds is usually accompanied by registration bond agreement (indenture), in which the issuing corporation makes a commitment to trusted representative (trustee) on the fulfillment of certain conditions. Chief among them is the timely payment of the coupon and principal. Others include overseeing the sale of mortgaged property, issuing other bonds, etc.

The authorized representative of the bond issue, usually a bank or trust company, acts on behalf of the bondholder. To strengthen the protection of bondholders in the event of a threat of bankruptcy, the following rule applies: if the corporation does not pay interest, then after a relatively short period of time (from one to six months), the entire amount of the debt is due.

The most common types of bonds are secured and unsecured.

Collateralized bonds include the following varieties

Bonds Backed by Physical Assets... This group includes mortgage bonds and equipment bonds.

In the event of corporate bankruptcy or insolvency, bondholders are entitled to receive this property, which they can sell to meet their claims. A corporation may be prohibited from issuing bonds secured by property that serves as collateral for other bonds (if such bonds have been issued, then they must be "of a lower order" or "secondary" in the sense that their holders can claim property only after how the requirements of the bonds previously issued on the security of this property were satisfied).

The legal procedures for issuing bonds secured by pledges of equipment can be very complex. In most cases, a scheme is used where the trustee who owns the equipment issues bonds, and then the equipment is leased to the corporation. The rent is used to pay bondholders interest and principal. As a result, when all payments are made on time, the tenant corporation acquires the right to the equipment.

Bonds collateralized by securities(collateral trust bonds) are secured by the securities of another company owned by the issuer held under the terms of a trust. The most common situation is when the securities of its branch act as collateral for the bonds of the issuing company.

Unsecured bonds(debentures) include the following flavors:

- unsecured bonds backed by the "good faith" of the issuing company;

- bonds for a specific type of the issuer's income;

- bonds for a specific investment project;

- bonds with distributed or transferred liability - liabilities are distributed among a number of companies;

By the way of circulation, they distinguish between ordinary (issued for a certain period and redeemed at the end of this period) and convertible bonds.

Convertible bonds can, at the request of their holder, be exchanged for other securities, as a rule, ordinary shares:

* transferable convertible bonds are exchanged for a certain number of ordinary shares of the same issuer;

* convertible bonds with an option provide the investor with the opportunity to surrender the bonds to the issuer or exchange them for ordinary shares when market interest rates rise.

Each convertible bond is exchanged for a specified number of shares in accordance with a set conversion rate. It is usually set at such a level that the exchange would be unprofitable until the share price appreciates significantly compared to its rate at the time the convertible was issued.

The conversion value of the bond (the value that will be received by the investor during the exchange) is determined by the formula (3.18):

where Pra is the market price of the share;

k is the conversion rate.

The conversion premium is the ratio of the amount by which the current market price of the bond exceeds the conversion value to the given value, expressed as a percentage.

. (3.19)

In foreign practice, very complex convertible papers can be found on the market. Some of them can only be exchanged after a certain initial period has expired, others - until the maturity date of the bond, and still others - only for a certain shorter period. Some have different conversion rates for different years. Individual papers can be converted into bundles of two or more types of papers; the condition for the exchange of others is the payment of an additional fee.

Convertible bonds are usually protected from stock splits. They may contain revocation terms. Corporations can use this condition to force investors to convert when the market price of the stock is large enough to exceed the call price of the bond.

Examples of bond issues by Russian issuing companies:

1. Zero-coupon bonds of OJSC Oil Company Lukoil, convertible into ordinary shares. The bonds are to be converted into ordinary shares in 1996. For this purpose, a part of the shares owned by the state (represented by the RFFI) is reserved, their share in the authorized capital is 10.94%. These shares are deposited with a foreign financial institution.

The total volume of the issue is 2,300,000 million rubles. The face value of the bond is 5 million rubles. Quantity - 460,000 pcs.

The bonds were placed among an unlimited circle of foreign and Russian investors. Initial placement - through investment institutions through a commercial tender. The participant of the tender undertakes to place bonds at a price not lower than 75% of the face value, the minimum package of bonds - in the amount of 50 billion rubles. Each bond after September 5, 1996 is exchanged for 179 ordinary shares of the company, with a par value of 25 rubles.

2. Bonds of OJSC Ryazan Trading House Bars.

Long-term documentary bearer bonds, the total volume of the issue is 40 billion rubles. at par. The nominal value is 100 thousand rubles. The total number of bonds is 400,000. Placed from April 1994 to July 1995 by open sale at par with an exchange rate premium. The preferential right to purchase at a discount from the nominal value had: shareholders, retirees, veterans of trade.

The bonds are redeemed by the issuer within a year, starting from July 1, 2001. A premium of 1,400 thousand rubles is paid for each bond. The issuer carries out monthly draws of prizes on bonds. Funds raised through the issue of bonds are used to replenish working capital and develop activities.

Bonds not secured by collateral

Bonds unsecured

The term “unsecured debt” is usually applied to the unsecured bonds of a corporation. Investors see the profitability of the corporation as sufficient collateral for these securities. Since such a loan is not secured by any values, in the event of liquidation, the owner receives the same rights to the assets of the corporation as ordinary creditors. Although the bonds are unsecured, their holders are protected to some extent by the restrictions stipulated in the bond between the bondholder and the corporation, in particular the negative collateral clause, which prevents the corporation from pledging its assets to other creditors. This condition protects the interests of the investor and provides him with certain guarantees that in the future these assets will be preserved for him. Since holders of unsecured bonds want the borrower to repay both the principal and the interest on the loan, only established and solvent companies are able to issue unsecured debt.

EMISSION - issuance of paper money, securities, as well as bonds, unsecured values, carried out by the state, commercial and industrial companies and credit institutions.

UNSECURED BOND - In the United States, an unsecured bond.

A portfolio of securities can consist of one security or a combination of both. Such a portfolio may contain common stocks, preferred stocks, short-term fixed income securities, bonds, unsecured obligations, warrants, and even derivatives. The mix or specialization depends on the investor's perception of the market, their risk tolerance and expected returns.

Convertible bonds are unsecured debt securities that can be exchanged for common stock within a specified period of time.

A mortgage (or mortgage bond) is a type of long-term (or short-term) obligations secured by certain assets of the borrower, usually property. In case of non-compliance with the terms of the contract, the assets provided as collateral may be sold by the lender. If the proceeds from the sale of secured assets are less than the amount of the mortgage, then its holder (who provided the loan) becomes the unsecured lender of the borrower until the difference is paid.

First, you need to pay remuneration to the authorized person in the amount of $ 200,000. and pay off the tax arrears in the amount of $ 300,000, leaving $ 4.5 million. for distribution to creditors. Holders of the secured bonds will receive $ 1 million. from the sale of the pledged equipment and will be transferred to the category of ordinary creditors with the remainder of unsecured claims in the amount of $ 1 million. The liquidation proceeds will be sufficient to pay off the company's obligations to the secured bondholders and ordinary creditors, but only $ 750,000 falls to the lower class bondholders. The shareholders will receive nothing as a result of the distribution. Briefly, the distribution of income can be presented in the form of a table

In order to protect the interests of investors, Russian legislation establishes certain restrictions on the issuance of unsecured bonds, which can be issued no earlier than the third year of the company's existence. An unsecured bond issue is possible in amounts not exceeding the amount of the company's authorized capital, and only after its full payment. If a company intends to carry out a bond loan for an amount exceeding the size of the authorized capital, then it must receive collateral from third parties.

Unsecured bonds with redemption fund

Subordinated unsecured bonds

Convertible subordinated unsecured bonds

All issues consist of convertible subordinated unsecured bonds.

The Gorodok Corporation issued three-year warrants giving the right to buy perpetual unsecured bonds at a rate of 12% at a price of 120% of par. The current interest rate is 12%, and the standard deviation of the bond's yield is 20%. Using the Black-Scholz formula, find the approximate cost of the Borough warrants.

As a financial manager, you need to choose the types of debt capital that best suits the specifics of your company. We will begin our analysis of this problem by describing the various forms of common bonds. Then, as we familiarize ourselves with the loan contract, we look at the differences between preemptive and non-redeemable bond loans, and the differences between secured and unsecured bonds. Next, we will show how bonded loans are repaid using the repayment fund and in which cases the borrower has the opportunity of early repayment. Finally, we will touch on some of the restrictions designed to deter companies from any action that could lead to a decrease in the value of bonds.

All bondholders are concerned that the company may issue additional secured debt. When issuing mortgage bonds, restrictions are usually imposed on the amount of secured debt. However, this is not necessarily the case when issuing unsecured bonds. If the unsecured issues are equally protected, then the amount of the pledged assets does not matter. An unsecured bond agreement usually contains a negative

And me too ”is a slang expression, and is not used in documents. The issuance agreement usually states "The Company will not issue, accept or guarantee any property-backed debt without providing equal collateral for the securities already issued." Should the company subsequently issue a secured debt, this negative collateral clause gives the holders of the unsecured bonds the right to claim debt repayment. However, this does not invalidate collateral provided to other bondholders.

The agreement specifies whether the bonds have priority at maturity, whether they are collateralized or not. Most of the bonds are represented by unsecured debentures and bills of exchange, which are general claims on the company. Exceptions are Utility First Mortgage Bonds, Secured Trust Notes, and Equipment Trust Certificates. In the event of default on obligations, the trustee obtains ownership of such assets to repay the debt.

Issuance of unsecured bonds may be accompanied by negative

In fact, by issuing bonds, the firm receives a long-term loan, for which it pays bondholders a fixed percentage of the bond's value annually (12-14%). Interest payments on bonds are usually made every six months. Unsecured bonds are backed not by the firm's assets, but by its good reputation (also called unsecured bonds).

An unsecured bond is only a general obligation to pay, and its holder, in the event of default by the issuer of obligations, can foreclose on its property on an equal basis with other creditors in the order of priority. A secured bond implies, in addition to the obligation to pay, an additional guarantee in the form of a pledge of the property of the issuer or third parties.

Otherwise, in case of violation of the issuer's obligations, the investor (or an organized group of investors) can seek the fulfillment of obligations in court, and holders of unsecured bonds are placed in a row with other creditors, having a priority position over them.

Debentures "- in American literature means unsecured bonds, in English - secured.

Unsecured (unsecured) bonds are direct debt obligations of a firm that are not secured by collateral. The claims of the holders of unsecured bonds are satisfied in the general manner along with the claims of other creditors. The actual collateral for such bonds is the general solvency of the company. As a rule, large and well-known companies with a high rating and good credit history resort to the issue of unsecured bonds, which serves as a guarantee of a refund. Although these bonds are not collateralised by specific assets, investors are protected to some extent by the terms of the bond issue. Usually, one of the conditions provides for a clause on negative collateral, that is, a ban on the transfer of the firm's property as collateral to other creditors. As a result, investors have all the firm's assets as collateral for return on investment. In addition, the bond issue prospectus may contain other protective clauses that guarantee investors the safety of their investments. As such conditions, there may be the issuer's obligations to maintain the ratio of borrowed and equity capital at a certain level not to carry out new bonded loans until the repayment of previous loans, to make regular contributions to a special fund for the redemption of bonds, etc.

Atari has issued convertible subordinated debentures. The term subordinated indicates that bonds are "junior" debt obligations - their holders in the event of bankruptcy will be among the last creditors claiming to fulfill their obligations to them. Debentura is simply an unsecured bond. This means that there are no special reserve assets to pay off the holders of such bonds in the event of bankruptcy. For details on these terms, see section 24-3.

Note that convertible bonds are issued mainly by small firms and mainly engaged in speculative operations. These bonds are almost always unsecured and usually subordinated26. Now step into the shoes of a potential investor. You have been approached by a small, untested new product company that wants to make a loan by issuing "junior" unsecured debt. If the firm does well, you will get your money back, but if the firm fails, you may well be left with nothing. As the firm develops a new line of business, it is difficult to assess the likelihood of failure. Therefore, you do not know what the fair rate of interest will be. In addition, you may be concerned that once you have made a loan, management will be willing to take even greater risks. It may make additional debt by issuing senior debt, or it may decide to expand production and bankrupt you. In fact, if you are demanding a very high rate of interest, you can contribute to it.

Almost all debt securities issued by industrial and financial companies are unsecured bonds. Long-term unsecured bond issues are usually called debentures15 short-term - promissory notes. In some cases, another firm may issue a guarantee against an unsecured loan, and many private loans are placed under the guarantee of the company's management. The personal well-being of the manager in this case does not matter, the guarantee serves as an important signal of the manager's confidence in the prospects of his company and acts as an excellent incentive.

Like most utility and rail bond issues, the Rurseau bond issue is secured. This means that in case of non-payment of the debt, the creditor or trustee will receive an appropriate share of the assets. If they are insufficient to meet the claims, the remaining amount owed will be paid in the usual way, as for any unsecured loan.

Term loans are usually issued without collateral. The terms of their issuance are very similar to the terms of issuance of most unsecured bonds. They are usually not subject to the most restrictive "negative" clauses of private placement bonds, but when granting loans, a minimum level of equity and working capital is also stipulated. Since the recipients of term loans are mostly small firms, the conditions for obtaining such loans often affect the top management of the company. For example, a bank may require the company to insure the lives of its senior managers, impose a regulation on the size and terms of remuneration of managers, or request personal guarantees against a loan.

Loans against real estate (Mortgage Bonds), or mortgage bonds, give their holders additional guarantees, since they are secured by a mortgage on all or part of the property of the company. The first mortgage bond is considered one of the most reliable and first-class capital investments, as it gives the investor the right to a share of the firm's income due to him. If the firm does not have the cash to pay off the bonds at maturity, the holders of the first mortgage bonds have a legal pre-emptive right over other creditors (for example, holders of unsecured bonds) over the pledged assets to be sold, and the proceeds from the sale will go to cover. debt.

BOND BOND (UNSECURED) - direct debt obligations that do not create property claims against the corporation. In the event of the corporation's liquidation, these securities may stand even after current obligations. BONDS are issued for several reasons: the absence of physical assets for mortgage assets are already pledged and the issue of new mortgage bonds is impossible financial stability and a good reputation of the company allows you to get a loan without resorting to securing its BONDS even with other securities.

Table 2.4 compares price movements for three issues of unsecured bonds (debenture) with redemption funds, each of which was in 1966-1967. about 100 were offered to the market, each had a longer duration to maturity and still retains its Aaa rating by Moody.

The auction was officially closed on November 30, i.e. 32 days after the first offer to acquire the corporation was made public. Towards the end, the main rivalry developed between Johnson's group and KKR. The KKR company offered 109 dollars. per share, adding the last dollar for each share (about $ 230 million in total) in the last hour of trading. " KKR's offer included $ 81 per share. money, a convertible subordinated unsecured bond worth about $ 10. and a preference share payable in kind for $ 18 each. Johnson's group offered $ 112, including cash and securities.

Convertible unsecured bonds are similar to the above, with the only difference being that these bonds may be converted at some point in the future to equity bonds.

Why is the coupon on a convertible unsecured bond usually lower than on a fixed bond

Unsecured bonds may have a lower status. They are issued as convertible ones, which can be exchanged for ordinary shares of the issuer. This right is fixed by the terms of issue.

Most of the bonds issued by non-governmental bodies are corporate securities. The corporate bond market is usually subdivided into several segments, which include bonds of industrial companies (the most diversified group of bonds) bonds of utility companies (the dominant group in terms of volumes of new issues) issues of financial institutions (banks, financial companies, etc.). Among corporate bonds, you can find not only a complete list of all types of bonds found in this market, but also the widest range of them - from the first mortgages on real estate to convertible bonds (which are supposed to be considered in the next chapter) unsecured bonds, secondary bonds with a secondary nature of claims to the issuer's assets, secured secondary bonds, bank short-term securities (representing unsecured debt obligations issued by banks or other financial authorities), and yield bonds. Interest on corporate bonds is generally paid semi-annually, with buyout funds very popular. Bonds are usually issued with $ 1,000

What is Convertible Unsecured Bonds How Convertible Bonds Differ From Convertible Preferred Shares

Explain why it is necessary to analyze both the bond properties and the equity properties of convertible unsecured bonds at the same time when determining their investment qualities.

All other things being equal, bonds backed by specially segregated property are always considered less risky than unsecured bonds of the same issuer (the so-called general security bonds, that is, backed by all the property of the issuer). The apparent contradiction can be easily explained. Separate property has the character of a pledge, it is considered encumbered with obligations to repay the loan and cannot be alienated (sold) by the issuer until repayment. In the event of a default on secured bonds, this property is liquidated (sold) under state control, and the proceeds are directed towards the repayment of the corresponding bond issue. Collateral is considered to be of higher quality, the more liquid it possesses. For example, convertible currency collateral is preferred over real estate collateral. In the event that the issuer declares a default on bonds with general collateral, the bankruptcy procedure of the issuing company is required to satisfy the financial claims of the bondholders. In this case, the procedure for returning funds to investors is delayed. In addition, if the balance sheet of the issuer is unsatisfactory, the proceeds from its liquidation may not be enough to satisfy all claims of bondholders in full.

Due to the considered features of downgraded obligations, they must have a significantly higher yield than simple unsecured obligations in order to be attractive to investors. Often, the downgraded obligation is convertible into common stock and therefore may be sold at a lower rate of return than the return that the company is expected to provide on the common unsecured obligation. From the lender's point of view, the equity of the firm is of the same value whether the downgraded bond issue is converted into common stock or not.

The issue of bonds is used by the firm as a source of borrowed funds to finance business activities. The bond is due for redemption on time. This means that the firm that issued the bond undertakes to pay by a certain date the amount received from the sale of the bond with the interest accrued on it. Bonds come in different types of secured and unsecured convertible and non-convertible with different terms of interest payments.

Fixed income securities are divided into three main groups: term loans, bonds and preferred shares. In turn, each of the groups can be subdivided into secured and unsecured securities, convertible and non-convertible, zero-coupon and coupon, and so on. The variety of securities is dictated by the diverse and volatile demands of investors.

Convertible bonds are a cheaper way to issue debt obligations, usually subordinated and unsecured

Typically, convertible bonds are issued as unsecured debt securities (long-term, unsecured debt securities

Enterprises can issue various types of bonds, unsecured, property-pledged, convertible, guaranteed, zero-coupon, with a variable interest rate, Eurobonds, etc. (Table 4).

Unsecured Only used by financially sound companies. Convertible bonds are usually unsecured

Question to the Appendix) Wheeling Corporation has issued a 10% convertible unsecured bond maturing in 8 years. The par value of bonds is 1000. The current rate is 99% of the par value. The bond can be converted into 15 ordinary shares. The current rate for the common stock of the company is 50. Non-convertible bonds with a similar level of risk yield a yield of 12%.

The main advantage of convertible bonds for a company is that the interest rate it needs to pay is likely to be lower than for ordinary unsecured bonds. Investors will agree with a lower interest rate due to the possibility of capital gains in the event of a rise in the share price, since the market value of the convertible bonds follows it. Convertible bonds are also a form of deferred apital. If the company instead

Ex hangeable - exchangeable (security). The issuer's right to exchange an unsecured bond for existing convertible preferred shares with identical terms. It is used most often when the company needs an urgent increase in equity capital and has a low current tax rate that is expected to change. This will make the bonds less attractive as a result of losing the right to tax deduction.

Transactions in convertible securities are subject to the same broker commission rates and transfer taxes as in transactions with ordinary bonds. And convertible preferred shares are sold at the same cost as direct preferred shares and common shares. In operations with convertible securities, the same types of orders, or orders, of the client to the broker are used, as is the case with bonds or stocks in general. Convertible unsecured bonds are quoted in conjunction with other corporate bonds. To distinguish them from ordinary bonds on the quotation list, these bonds are denoted by the symbols v in the column "Current yield" (ur Yld) of the bonds, as shown in Fig. 10.6. Note that some convertible issues (for example, the issue of Kompak Computer bonds with a 6V2% rate and maturity in 2013) quite often have high rates. This is due to the high rates of common stocks for which the corresponding convertible bonds are being exchanged. Convertible preferred shares, on the other hand, are usually listed on the list of preferred shares without special allocation, they are denoted by the symbol p, like other preferred issues. Therefore, the investor should find information in other sources about whether this issue of preferred shares is convertible (one of the business newspapers - Investors Daily - provides a separate list of preferred shares that are traded on the New York and American Stock Exchanges, and highlights convertible issues in bold).

Dave and Marlene Normington live in pc. California, and both work as managers for Marlene's honeymoon shop and Dave for an industrial company. Their annual income is in the middle category, they have no children, so the family lives quite comfortably. They have some savings recently and are looking with curiosity to invest in fixed income securities. While Dave and Marlin are not speculative investors, they love to maximize the return on every dollar of investment. For this reason, they prefer the highly profitable and at the same time "stock effect" convertible bonds, which is why they are now looking for a similar issue. In particular, they were attracted by the convertible unsecured bonds of the Maria Potteri company. They learned that its share price would rise soon, and after conducting their own analysis, they were once again convinced of the favorable growth prospects, they also studied the market rates of return and, based on information from their broker, believe that interest rates will drop sharply.

The main components of portfolio investments by assets and liabilities are equity securities and debt securities traded in organized and other financial markets. Unsecured securities also give the owner an unconditional right to receive a fixed amount of the principal debt within the specified time (s). This group includes non-participating preferred shares, convertible bonds and bonds with a choice of maturity, the most recent of which is more than one year from the date of issue. A conversion option (to shares) can be viewed as an exchange-traded derivative contract, i.e. an asset that can be realized independently of the instrument underlying the contract. Dividing the transaction value into two components - the bond value and the option value -

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Bonds with real estate collateral (ЛГ = 1,000) 20 Preference bonds (ЛГ-100) 5 Ordinary shares (N-40) 20 Retained earnings 5 ​​5.14 13.4 17.11 16 40 22 10 4.5 40 32 10 8 5.14 13.4 17.11 16 33 6.8 48.1 12

Bonds secured by a pool of mortgages (mortgages). The same bonds are issued by a lender who is secured by a pool of mortgages against real estate loans issued by him. The receipt of payments on these loans is the source of repayment and interest payments on a bond loan secured by a pool of mortgages.

Additional bonds may not be issued if, within 12 of the 15 months immediately preceding the issue, the Company's net profit does not exceed twice the annual interest on all collateralized bonds and bonds and all other bonds then in circulation or in issue. , or the amount of appropriations for the purchase of property (meaning net income before amortization, income tax and interest). Or if the bond issue is not issued on full payment terms, or is subject to early redemption, or purchased within two years on the terms of additional property qualifying for a short-term priority loan secured by property (which simultaneously turns into a bond priority bond) and the bonds are issued within two years prior to maturity redemption of bonds with priority pledge, which is their security (sections 3, 4, 7, art. III). With an interest rate on new bonds of 11% per annum (excluding the impact of a decrease in interest due to debt refinancing), net profit for the 12 months through June 30, 1985 will be approximately 4.7 times higher than the cumulative interest discussed above. This interest coverage ratio will allow the issuance of bonds backed by real estate, approximately 1.25 billion dollars. (in addition to new bonds) at an assumed interest rate of 11% per annum secured by additional property or cash deposits, although the additional issue of bonds worth approximately $ 540 million. may be issued soon in accordance with the restrictions on the mortgage loan.

Among the many investment areas covered by the dictionary, there are antiques, art objects, bank deposits and securities, bonds, collectibles, commodity markets, foreign exchange markets, debt obligations, diamonds, stock exchanges, futures, government securities, insurance, investment trusts, investment legislation, metals, collateralized bonds, mutual funds, oil investments, securities issued on the basis of a pool of mortgages or other loans, pension funds, real estate, stocks, tax-free bonds, tax havens and venture capital.

In the field of credit relations, their other forms are also widespread a) consumer credit (sale of goods to individuals through retail stores with deferred payment, bank loans for consumer purposes) b) mortgage loan (long-term loan secured by real estate - land, buildings) c) inter-farm credit (issue by enterprises and organizations to provide each other with shares, bonds and other securities) d) government credit (issue of bonds of government loans purchased by businessmen and the population).

The introduction of the monitoring procedure is not a basis for the removal of the head of the debtor and his other management bodies. They continue to exercise their powers, albeit with certain restrictions, transactions related to the transfer of real estate for lease, a pledge with the introduction of property as a contribution to the authorized capital of business entities with the disposal of the debtor's property, the book value of which is more than 10 percent of the book value of the debtor's assets. as well as those related to the receipt and issuance of loans, sureties and guarantees, the assignment of rights of claims, the transfer of debt, with the institution of trust management of the debtor's property can be performed only with the consent of the temporary administrator. The debtor's management bodies are not authorized to make decisions on reorganization and liquidation on the creation of branches, representative offices and legal entities or on participation in other legal entities on the payment of dividends on the placement by the debtor of bonds and other securities on the withdrawal from the debtor's participants, on the acquisition from shareholders of previously issued shares. The decision to participate in various associations of legal entities can be made by the debtor's management bodies only with the consent of the temporary administrator. The arbitration court has the right to remove the head of the debtor from office if he violates the requirements

Bonds with collateral are such bonds of a credit institution, the fulfillment of obligations under which is secured by a pledge, surety, bank guarantee, state or municipal guarantee. Only securities and immovable property can be the subject of pledge for the bank's bonds with collateral.

For bonds. The committee drafted a bill under which commercial banks could issue bonds secured by loans or monetary claims, whereas today it is possible to issue bonds secured by either real estate pledges or securities. We believe that the main asset of banks is loans, and, accordingly, this would enable banks to work more actively in the capital market, issue securities for appropriate loans and borrow money from individuals or legal entities. However, the President of the Russian Federation vetoed this bill, we carefully studied his comments, they are of a technical nature. I hope that during the first quarter all these issues will be removed, the law will begin to work and, accordingly, will create an opportunity for banking organizations.

S. also differ depending on the nature of the borrower's activities and the purpose of obtaining a loan. The most common trail, types S. S. bargaining, and prom. companies with S. dealers and brokers of the stock exchange, as well as individuals on the security of stock values ​​(stocks, bonds, etc.) of the agricultural sector. S. (iodine pledge of crops, land, buildings, etc.) S. for real estate (chap. For the purchase of residential buildings) consumer S. (for the purchase of goods lasts, use with payment in installments - cars, TVs, furniture , as well as to cover one-time costs - tuition fees, renovation of the premises, payment of treatment costs, etc.).

All other things being equal, bonds backed by specially segregated property are always considered less risky than unsecured bonds of the same issuer (the so-called general security bonds, that is, backed by all the property of the issuer). The apparent contradiction can be easily explained. Separate property has the character of a pledge, it is considered encumbered with obligations to repay the loan and cannot be alienated (sold) by the issuer until repayment. In the event of a default on secured bonds, this property is liquidated (sold) under state control, and the proceeds are directed towards the repayment of the corresponding bond issue. Collateral is considered to be of higher quality, the more liquid it possesses. For example, convertible currency collateral is preferred over real estate collateral. In the event that the issuer declares a default on bonds with general collateral, the bankruptcy procedure of the issuing company is required to satisfy the financial claims of the bondholders. In this case, the procedure for returning funds to investors is delayed. In addition, if the balance sheet of the issuer is unsatisfactory, the proceeds from its liquidation may not be enough to satisfy all claims of bondholders in full.

In prerevolutionary Russia, K. k. Did not receive wide development. On Jan 1. In 1913, the amount of bond debt of the cities was 444.5 million rubles, of which over 80% were in 9 large cities. The first communal bank under the name of the city bank was organized in 1809 in the town of Slobodskoy, Vyatka province. Such banks under the name of urban public banks have been more widely developed since the middle of the 19th century. (see City banks). In addition, there were other institutions of K. k. Cash desk of city and zemstvo credit (see), city and provincial credit societies, funds to-ryh were created through share contributions and the issue of bonds, the activities of credit societies were controlled by the city and provincial governments, they issued loans, as a rule, against the security of urban real estate. On Jan 1. 1914, there were 36 of these, the balance of loans issued was 1.3 billion rubles. with a total city mortgage debt of 1.7 billion rubles.

Each particular issuer can issue many different securities at a given time. In addition to coupon and maturity, one bond issue may differ from another in the type of collateral on which the issue is based. Issues can be senior or, conversely, junior in terms of requirements for the issuer's assets. Senior bonds are secured securities, since they are based on a legally justified claim to the assets of the issuer (in the form of a mortgage. - Approx. Scientific pea). Such issues include real estate bonds secured by real estate financial bonds secured by the securities of other companies owned by the bond issuer but held in trust by a third party equipment purchase certificates that are secured by specific types of equipment (most popular among owners of railway or aviation companies), finally, bonds with a combined collateral (first and refunding bond), which combine bonds secured by the first (senior) mortgage, and junior bonds secured by a mortgage on other company property (i.e. bonds are partially collateralized by the first mortgages on certain assets of the issuer, and partially second or third mortgages on other assets, therefore such issues are less necessary, and therefore should not be mixed with bonds secured by the first mortgage).

Mortgage bonds (9) are bonds with a priority right of claim on a company's assets backed by its real estate.

In addition, banking regulators use risk-adjusted assets to calculate the ratio of a bank's capital to its assets. This is done in the following way. Regulators treat cash, US government securities, and federally guaranteed National Mortgage Association securities backed by a pool of mortgages as risk-free assets, so they are assigned zero risk. Assets with relatively low credit risk, such as interbank deposits, general guaranteed municipal bonds, FNA and FHA, backed by a pool of mortgages and partially guaranteed by the federal government, are assigned a 20% risk. Riskier assets, such as the first mortgages secured by real estate and municipal income bonds, received a risk level of 50%. All other bank securities and loans are considered to have a risk level of 100%. Finally, off-balance sheet commitments, such as loan commitments, are accounted for by converting them into dollar-denominated credit risk equivalents. Then an appropriate level of risk is set for them. All risk indicators are added together. This total is the amount of risk-adjusted assets.

There are several specialized long-term credit banks in the UAR. The oldest of these is the Egyptian Land Loan (1880). For many years, he issued long-term loans mainly against the security of large land plots. After limiting land ownership rights to 200 feddans in 1952, he switched to providing mortgage loans for urban real estate. The share of loans secured by land fell from 64% of all his loans in 1950 to 25% in 1960. Small agricultural loans. producers are provided by two other banks: Agricultural and Cooperative Loans (founded in 1931) and Egypt's Mortgage Loans (founded in 1932). Both banks are under the control of the pr-va. In addition to lending activities, the Agricultural and Cooperative Credit Bank carries out distribution of seeds and fertilizers, storage of crops. To replenish his resources, he issued guaranteed bonds of 3% for 25 million pounds. The overwhelming majority of the bank's loans (84% in 1960) are provided by agricultural companies. cooperatives (about 4 thousand cooperatives). Long-term, as well as short-term crediting of industrial enterprises is carried out by the Industrial Bank, created in 1949, with a capital of 1.5 million pounds, 51% of which belongs to the pr-vu. Loans are provided mainly to enterprises of the machine-processing and textile industries. In recent years, the bank has expanded lending to small, including agricultural. enterprises, as well as cooperative societies. In lending to small farms. manufacturers and urban artisans still play an important role in usury.

See pages where the term is mentioned Real estate bonds

One of the types of bond security is collateral. At the same time, the issuer provides certain property as security, and in case of non-fulfillment or improper fulfillment of its obligations, the property will be transferred to the use of the pledgee.

In addition to a bank loan, in a market economy, one of the most effective ways to raise funds is to issue securities (CB). Thanks to them, there is a redistribution of capital from the investor to the consumer who needs resources.

Issuing bonds, unlike loans, does not always solve problems now and completely. It is necessary that they be purchased by buyers at an appropriate price on the terms provided. There are several ways to attract the attention of an investor:

• providing a high income;
• by providing reliable collateral.

Having studied the behavior of investors, we can conclude that some of them are ready to invest in projects, even risky ones, if they provide high returns and quick payback. Such an investment is not always justified, but many stock market participants can afford it and deliberately take risks. The other part of the investors is more cautious, they do not "take off the shoulder", do not chase excess profits and carefully analyze the risks, try to conclude an additional pledge agreement before investing financial instruments.

Collateralized bonds are a safe investment. They are fully secured, so the buyer can be sure that his funds will be returned. The profitability of them, secured by collateral, is significantly lower than that of unsecured ones. This is due to the fact that:

• the risk of buying them is minimal;
• the loan provided is liquid;
• thanks to the pledge agreement, their holder is legally more protected.

Security in the form of a pledge

The following are the guarantees for collateralized bonds:

• real estate;

Such collateral is liquid, and its value is significantly higher than the value of the issued collateralized bonds. This provides the securities holder with confidence that his funds and interest income will be received in full.

In order to assess the real value of the subject of the loan, an agreement is concluded with an independent appraiser. He analyzes and evaluates the property. The pledge agreement is considered valid immediately after the first owner has the right to the pledged bonds. If the subject is real estate, in this case, after the issue of securities, it is necessary to register the mortgage in a special register. Without this, their implementation is prohibited. Also, the contract must be certified by a notary.

In case of non-fulfillment or improper fulfillment of obligations by the issuer, according to the agreement, the property can be sold. This takes place at the written request of one of the pledgees. It is sent to the mortgagor, the issuer and the person who will carry out the sale of the property.

The sale is carried out at auction. All the money raised from this goes to meet the requirements of the investor. Usually repayment is carried out in proportion to the equity participation of the securities owners. If the claim was presented by one of them, the repayment is carried out primarily in his favor, and then distributed among the rest.

Features of working with federal loan bonds

The Central Bank can also act as collateral. The procedure for them is the same - an agreement is drawn up, the Central Bank is transferred from the pledger to the pledgee for the duration of its validity. There are nuances of working with federal loan bonds.

Federal loan bonds are uncertified. That is, they are not issued in paper form, but exist in the form of entries on DEPO accounts, where they are accounted for. The transfer of federal loan bonds as collateral is not possible from one account to another. Its registration takes place on the account of the pledger in the section “blocked in the pledge”. This is not a classic loan, but transactions with securities are blocked, and their movement becomes temporarily impossible.

Collateralized bonds are a more effective financial instrument than a bank loan. They are secured as real estate or securities. Due to their reliability, they are an attractive investment. Despite the fact that the income on them is significantly lower than that of those that do not have collateral, they are consistently in high demand.