Following yesterdays blog I was contacted by a few readers with queries about levels of security in the debt investment space. It appears that the internet is not as forthcoming with information regarding bond security as they would like. On that basis I am putting finger tips to keyboard once again to provide an overview of DevDosh Ltd and bond security.
Bonds come in many different shapes and sizes. There are several different classifications of bonds. The classification indicates how the bond relates to the issuing corporations capital structure. This is very important as the classification tells you the payout order should the issuer default.
List of Corporate Bond Classifications in Pay Out order
- Secured Corporate Bond : The most senior form of secured debt. The debt is secured against a nominated asset. The asset could be property or heavy equipment for instance. Should the issuer default the asset would be sold to repay the debt obligation. Beware of valuations and equity levels on the asset. If the debt obligation and asset value are the same there is less chance of recovering the debt in full.
- Senior Secured Bond : Senior secured bonds will be paid out before any other debt obligation not secured to a specific asset (see above). As corporate assets are sold to repay debts senior secured bond holders will be paid first and then other bond holders with increasingly subordinate levels of security will be paid until assets banks are void.
- Senior Unsecured Bond : The most senior form of unsecured debt. There is no asset backing to this debt commitment. Should the issuer default there is no collateral structure to call upon to satisfy the debtors need for recovery. However, any monies available after all secured debt holders have been paid will be prioritised to senior secured bond holders.
- Junior, Subordinated Bond : Specifically named to indicate their place in the payout order. These bonds are paid out after all secured and unsecured senior classified debt.
- Guaranteed and Insured Bond : These bonds are not backed by assets but are underwritten by a third party. It is a bond wrapped in an insurance policy. The benefit is that default payout is guaranteed at a rate set by the policy. The downside is that the premium reduces investor yield.
- Convertible Bond : Some corporate bond issuers will allow their bond holders to swap their bonds for common stock. The stock will be offered at a pre-set price. This provides the investor with the potential to realise a more lucrative upside should the stock value of the corporation increase. Potential pitfalls to be aware of are that convertible bonds typically have a lower yield than regular bonds and common stock falls beneath all forms of debt in the recovery payout hierarchy.
As this subject interests people I will provide information on recovery rates and have a look at debentures and loan notes in the future as well.
With regards to how the DevDosh Ltd fixed income investment product compares to bond security, the answers is excellently.
DevDosh Ltd secure their investors capital via a 1st charge real estate development mortgage with a minimum 20% equity. Our investors hold the most senior form of debt in the recovery payout tree. Furthermore the assets we hold the 1st charge over are independently valued to be worth at least 20% more than capital exposed.
For a safest 10% yield in today’s fixed income investment market, contact DevDosh Ltd today.