Security offered on Bonds

When companies offer bonds, there is the chance that they secure the debt against their assets.

There are two standard ways in which this can be done, as outlined below.

The first of these is a fixed charge which secures the debt against a specific business asset, so that if the company has to default on the loan for whatever reason then the holder can remove the specified asset and use it as they wish, selling it to get back the cash to pay off the debt as much as possible.

If there happens to be surplus after the sale of the asset then this legally has to be returned to the relevant company.

There is also a floating charge whereby it is against the assets in general and not just a specific asset, which again comes into focus when there is a default on the loan.

The fixed charges are seen as legally superior to the floating charges.

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