Secured Bond
Secured Bond is a bond that is backed by some form of asset, which promises that the borrower will receive compensation in the case of default. Secured Bond is usually backed by a mortgage (real estate or physical equipment that can be liquidated), or a revenue stream created by a project. If the lender defaults, title of the asset used to back the bond will be passed to the holder of a secured bond.
Because of the security investors are experiencing, secured bonds are less risky than unsecured bonds and, therefore, pay lower returns. In addition, in the event of default, holders of secured bonds will be on top of the line when compensation for the default is paid off.
Issuance of secured bonds can be a good way, for lenders, to provide lower yields to the investors, if they are confident in the success of their business.
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