Unsecured bonds

A debenture is an unsecured bond. Strong companies are in a better position to issue debentures than weak companies since they have less need to pledge specific assets. Debenture holders are really general creditors. Subordinated debenture holders have claims on assets only after the claims of certain other claimants have been met. The issue of subordinated debentures provides a tax advantage for a com-... 

Most debt capital is raised by issuing long-term bonds. A mortgage is a bond that is backed by pledging a specific real asset as security against the loan. An unsecured bond is called a debenture. The ratio of total debt divided by total assets is known as the debt ratio (DR) or leverage of the company. 

Terms and Conditions of the bonds (the Ts Cs ) which are the most negotiated terms are usually those dealing with the negative pledge, which is a commitment by the issuer not to create a security interest senior to the bond over any collateral or not to issue debt senior to the bond, in the case of unsecured bonds description of the interest payable and redemption amount early redemptions (e.g., for tax reasons, puts and calls) withholding taxes and events of default. If the bond is part of a repackaging or a structured bond, the Ts Cs will also include a summary of the terms under which the security created for the benefit of the noteholders will be realised. 

The repo market has allowed the hedge fund to borrow in sterling at a rate below the cost of unsecured borrowing in the money market (4.95%). The repo market maker is overcollateralised by the difference between the value of the bonds (in ) and the loan proceeds (2%). A rise in USD yields or a fall in the USD exchange rate value will adversely affect the value of the bonds, cansing the market maker to be undercollateralised. 

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