Types of Corporate Bonds
Chapters in this video
- 0:00 The bankrupt airline puzzle
- 1:19 Secured bonds: mortgage, ETC, collateral trust
- 2:10 Why ETCs dodge the automatic stay
- 2:57 The liquidation priority waterfall
- 4:15 Debentures: unsecured does not mean unsafe
- 4:52 Income bonds and trading flat
- 5:27 Zero-coupon bonds, duration risk, and phantom income
- 7:01 Step coupon bonds and the call trap
- 7:33 High-yield bonds and the BBB cutoff
- 8:30 Rapid-fire exam recap
What this video covers
- The three secured bond types (mortgage bonds, equipment trust certificates (ETCs), collateral trust bonds) and what backs each one
- Why equipment trust certificates are among the safest corporate bonds, thanks to the automatic stay exemption for aircraft and railroad rolling stock
- The exact liquidation priority order: secured bonds, senior debentures, subordinated debentures, preferred stock, then common stock
- Why a debenture from a AAA issuer can be safer than a secured bond from a B-rated issuer, since creditworthiness beats collateral
- Income (adjustment) bonds: distressed issuers, interest paid only if earned, no default on a skip, and why they trade flat
- Zero-coupon bonds: maximum interest rate risk, zero reinvestment risk, and the phantom income from original issue discount (OID) accretion that belongs in an individual retirement account (IRA)
- The investment-grade cutoff (below BBB for S&P and Fitch, below Baa3 for Moody's) and why "high yield" is really hazard pay for default risk
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