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Finance: What are Secured Bonds v Unsecured Bonds, and what is Non-Recourse Debt: Debentures (Subordinated and Senior)? 65 Views
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When a bond is secured, it means it's protected, i.e. there are assets that would be forfeited if repayment is not made. When it's unsecured... it's pretty much just a handshake.
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Transcript
- 00:00
finance a la shmoop what are secured bonds versus unsecured bonds and
- 00:07
debentures okay so that's an insecure bond but we're talking about here is an [Insecure bond hiding under the sheets]
- 00:17
unsecured bond what is an unsecured bond well this is that was an unsecured bond
- 00:23
old school like 15 century old school it was just a handshake one guy promised to [People shake hands]
- 00:28
pay back another 400 pounds of barley in return for three sheep next year or
Full Transcript
- 00:34
something like that and the sheep were the payment form not the guarantee and
- 00:38
the bond was loan emic bond ursins word in fact the promise to pay was secured
- 00:44
but by his word or commitment to repay the loans kind of old school debenture
- 00:49
unsecured bonds work similarly today corporations sell debentures to Wall [Corporations sending debentures to Wall St]
- 00:54
Street all the time debenture being a fancy word for an
- 00:57
unsecured bond it's just debt that the company promises [Definition of debenture]
- 01:01
to pay back well if they don't then oh well and yes the debenture holders could
- 01:05
in theory then take ownership of the equity of the company but in reality [Debenture holders take the majority of the company equity pie chart]
- 01:10
unsecured bonds when not paid back almost always mean the death of the CEOs
- 01:15
career and likely also of the careers of all the other members of the management [Gravestones for the management board]
- 01:20
team so while unsecured bonds are notionally more risky than secured bonds
- 01:25
well this issue hasn't been tested all that often in real life okay so if
- 01:29
that's an unsecured bond what's a secured bond well it's one that
- 01:34
is secured by a specific asset or value or other stores of wealth which get [Definition of secured bonds]
- 01:40
forfeited if the lendee doesn't pay back the lender on time and in accord with
- 01:46
the terms of the debt deal example the dung and the restless' is a company that [Sign for 'The Dung and the Restless']
- 01:51
makes fertilizer by collecting old political speeches and grinding them up [Speeches going into the grinding machine]
- 01:55
selling them to farmers in the Midwest you know for a coin but they also own a [Tractor spraying crops]
- 02:00
pork farm which is kind of separate from their main fertilizer biz they need [Hogs Gone Wild logo appears]
- 02:05
money to build a bigger grinder because politicians are giving more speeches
- 02:10
these days you the internet and all that and they [Politician being applauded]
- 02:12
pledged their pork farm as collateral behind that secured bond offering that [Collateral sign on the pork farm]
- 02:17
is if they don't pay back the bond interest and principle on time then they
- 02:22
lose the pork farm to the lenders yeah and that would be a pig mistake... [Guy snorts like a pig]
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