Time value of Money

Corporations can affect the default risk of their bonds by changing the type of bonds they issue.

Under a mortgage bond, the corporation pledges certain assets as security for the bond.

A debenture is an unsecured bond, and as such, it provides no lien against specific property as security for the obligation. Debenture holders are, therefore, general creditors whose claims are protected by property not otherwise pledged.

Subordinated debentures have claims on assets, in the event of bankruptcy, only after senior debt as named in the subordinated debts indenture has been paid off. Subordinated debentures may be subordinated to designated notes payable or to all other debt.

Some companies may be in a position to benefit from the sale of either development bonds or pollution control bonds. State and local governments may set up both industrial development agencies and pollution control agencies. The agencies are allowed, under certain circumstances, to sell tax-exempt bonds, then to make the proceeds available to corporations for specific uses deemed by Congress to be in the public interest.

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