Funded debt refers to the money that an individual or entity owes and has committed to repay. This debt can be owed to various parties, including individuals, entities, or governments. Funded debt can be secured by collateral or guaranteed by the debtor’s complete trust and creditworthiness. It can have a short-term or long-term duration and can be repaid through future taxation or the accumulation of funds.
Funded debt is a form of debt that is backed by a bond or debenture and is intended to substitute short-term, variable, or unsecured debt. It can also refer to a government or municipal debt that will be repaid from a pool of funds or through future taxation. For example, a company issues bonds to raise funds for a new project, with the bonds being secured by the company’s assets and classified as funded debt. Similarly, a city issues municipal bonds to finance a new stadium, with the bonds being repaid over several years and classified as funded debt. These instances demonstrate how funded debt is a long-term debt secured by a bond or debenture, intended to replace short-term, variable, or unsecured debt. It is a means for companies and governments to raise funds for significant projects or expenses that they cannot afford to pay for upfront.
Funded debt refers to a type of debt that is backed by specific assets or revenue streams. It typically involves the issuance of bonds or other long-term debt instruments.
Unlike unfunded debt, which does not have specific assets or revenue streams backing it, funded debt provides lenders with a higher level of security as they have a claim on the specified assets in case of default.
Common types of funded debt include corporate bonds, government bonds, municipal bonds, and mortgage-backed securities.
Funded debt is typically repaid through regular interest payments and the eventual repayment of the principal amount at maturity.
Yes, a company can issue multiple types of funded debt simultaneously, depending on its financing needs and market conditions.
Funded debt allows companies to access larger amounts of capital, often at lower interest rates compared to other forms of financing. It also provides a structured repayment schedule, which can help with financial planning.
Yes, there are risks associated with funded debt. If a company fails to make interest payments or repay the principal amount, it may face default, which can lead to legal actions, loss of assets, and damage to its credit rating.
Yes, funded debt can be refinanced if the borrower can secure more favorable terms or lower interest rates. Refinancing can help reduce the financial burden and improve cash flow.
Funded debt plays a significant role in determining a company’s credit rating. A higher level of funded debt relative to its assets or revenue may result in a lower credit rating, making it more expensive for the company to borrow in the future.
In some cases, funded debt can be converted into equity through specific agreements or financial instruments. This conversion allows lenders to become shareholders in the company, potentially benefiting from its future growth and profitability.
This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.
This glossary post was last updated: 17th April 2024.
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