A plain bond, also called a debenture, is a type of debt that lacks collateral. It is solely supported by the issuer’s overall creditworthiness and financial standing, typically a corporation. Consequently, if the issuer defaults on the debt, bondholders have no entitlement to any specific assets or property. Debentures can take various forms, including convertible debentures that can be converted into stock, sinking-fund debentures that are secured by payments into a fund, and subordinate debentures that are subordinate to other debts. In English law, a debenture can also refer to a company’s security for a monetary loan, often creating a charge on company stock or property.
A plain bond, also called a debenture, is an unsecured debt instrument that relies solely on the corporate issuer’s general credit and financial reputation. This means that if the issuer defaults on the bond, the bondholders cannot claim any specific assets of the company to recover their money. For instance, if a company issues a plain bond worth $1,000, the bondholders are owed $1,000 plus interest. However, if the company goes bankrupt and cannot repay the bond, the bondholders have no right to any specific assets of the company. Companies often use plain bonds to raise capital for various purposes, such as business expansion or funding new projects. These bonds typically have a fixed interest rate and a maturity date, by which the company must repay the bond’s principal amount. Convertible debentures are a type of plain bond that can be converted into another security, like stock. Sinking-fund debentures are secured by regular payments into a fund established to retire long-term debt. Subordinate debentures are subject to the prior payment of ordinary debentures and other debts.
A plain bond is a type of legal document that represents a debt owed by one party to another. It is a simple and straightforward agreement that outlines the terms and conditions of the loan, including the principal amount, interest rate, and repayment schedule.
Unlike other types of bonds, such as convertible bonds or callable bonds, a plain bond does not have any additional features or options. It is a basic debt instrument that does not offer any special rights or privileges to the bondholder.
Yes, anyone can issue a plain bond as long as they have the legal capacity to enter into a contract. This includes individuals, corporations, governments, and other legal entities.
Yes, plain bonds are subject to various laws and regulations depending on the jurisdiction in which they are issued. These laws govern the issuance, trading, and enforcement of bonds to protect the rights and interests of both issuers and bondholders.
Plain bonds are commonly traded in the secondary market, where investors buy and sell them after the initial issuance. They can be traded through brokerage firms, financial institutions, or electronic trading platforms.
If the issuer of a plain bond fails to make the required payments, it is considered a default. In such cases, bondholders may take legal action to recover their investment, which may include seeking repayment through the court system.
Yes, plain bonds can be transferred from one party to another through a process called assignment or transfer. This allows bondholders to sell or gift their bonds to someone else, who then becomes the new bondholder.
The terms of a plain bond are typically fixed and cannot be modified without the consent of both the issuer and the bondholder. However, in certain circumstances, such as financial distress or restructuring, the terms may be renegotiated through a process known as a bondholder vote.
The safety of investing in plain bonds depends on various factors, including the creditworthiness of the issuer and the prevailing market conditions. Generally, bonds issued by reputable entities with a strong financial standing are considered safer investments compared to bonds issued by riskier entities.
The value of a plain bond is influenced by several factors, including the prevailing interest rates, the creditworthiness of the issuer, and the remaining term to maturity. Bond valuation models, such as discounted cash flow analysis, can be used to estimate the present value of future cash flows associated with the bond. Additionally, market prices and yields of similar bonds can provide an indication of the bond’s value.
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: 16th April 2024.
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