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Bonds That Corporations Can Issue Essay

Iacobucci and Triantis clarify that any type of corporation with legal personhood qualifies to issue debt as long as it can own property, enter contracts and be sued.

Corporates can be issued in bearer form, where the holder of the actual certificate is required to update information periodically with the trustee or issuer, or as "registry" bonds, with the owner named but which carry no material coupons. "Book entry" bonds reside in a central securities depository and are registered with the broker, who then assigns interest to the owner's brokerage account. Corporate bonds can be unsecured "debentures," or backed by specific assets identified in the indenture. First-mortgage bonds are backed by lien against real estate owned by the debt-incurring firm; collateral trust issues are backed by other financial assets owned by the corporation, and "Equipment Trust Certificates" are tied to large real assets other than real estate. All these types of security provide collateral against bankruptcy which is paid before equity issues are reimbursed unless otherwise specified, in which case the bond is called "subordinated." If a third party or parties back the debt, the result is a "guaranteed" bond, where the bond guarantors stand liable for principal repayment in the event of bankruptcy.

Works Cited

Alpreda, R. (2008). Cost Of Capital Adjusted For Governance Risk Through A Multiplicative

Model Of Expected Returns. University Of Cema Center for the Study of Public and Private Governance, Working Paper Series, number 383.Academic Search Complete papers.ssrn.com/sol3/papers.cfm?abstract_id=1305220 (accessed Jan. 5, 2012).

Financial Industry Regulatory Authority. (2012). Individual Bonds.

http://apps.finra.org/investor_information/smart/bonds/306000.asp (accessed Jan. 5, 2012)

Financial Industry Regulatory Authority. (2012). Bond Maturity. Bond Basics.

http://apps.finra.org/investor_Information/smart/bonds/102000.asp (accessed Jan. 5, 2012).

Financial Industry Regulatory Authority. (2012). Floating Rate Bonds. Bond Basics.

http://apps.finra.org/investor_Information/smart/bonds/103300.asp (accessed Jan. 5, 2012).

Financial Industry Regulatory Authority. (2012). Corporate Bonds. Individual Bonds.

http://apps.finra.org/investor_information/smart/bonds/306000.asp (accessed Jan. 5, 2012).

Franc-Dabrowska, J. (2007). Does Dividend Policy Follow the Capital Structure Theory?

Managing Global Transitions 7, no. 4: 367 -- 382 (2007). Academic Search Complete www.fm-kp.si/zalozba/ISSN/1581-6311/7_367-382.pdf (accessed Jan. 5, 2012).

Iacobucci, E. And Triantis, G. (2007). Economic And Legal Boundaries Of...

Virginia Law Review 93 Va. L. Rev. 515-570. www.virginialawreview.org/content/pdfs/93/515.pdf (accessed Jan. 5, 2012).
Investopedia. (2011). Bond Basics: Different Types of Bonds. Investopedia ULC (2011).

http://www.investopedia.com/university/bonds/bonds4.asp#ixzz1iiAcERxi (accessed Jan. 5, 2012).

Kwan, S. (2009). Capital Structure in Banking, FRBSF Economic Letter 2009-37 (7 Dec.

2009). http://www.frbsf.org/publications/economics/letter/2009/el2009-37.html (accessed Jan. 5, 2012).

Notes

1. Financial Industry Regulatory Authority (FINRA), "Individual Bonds" (2012). http://apps.finra.org/investor_information/smart/bonds/306000.asp

2. Ibid.

3. Investopedia, "Bond Basics: Different Types of Bonds." Investopedia ULC (2011).

http://www.investopedia.com/university/bonds/bonds4.asp

4. Financial Industry Regulatory Authority (FINRA), "Individual Bonds" (2012). http://apps.finra.org/investor_information/smart/bonds/306000.asp

5. FINRA, "Bond Maturity," DATE, http://apps.finra.org/investor_Information/smart/bonds/102000.asp

6. FINRA, "Floating Rate Bonds," DATE, http://apps.finra.org/investor_Information/smart/bonds/103300.asp

7. Iacobucci and Triantis provide an extended discussion of the legal ramifications underlying the decision between debt and equity for borrower / originator (firm) and creditor / owner. Edward Iacobucci and George Triantis, "Economic And Legal Boundaries Of Firms," Virginia Law Review 93 Va. L. Rev. 515-570.

http://www.virginialawreview.org/content/pdfs/93/515.pdf

8. FINRA, "Corporate Bonds," Individual Bonds (2012)

http://apps.finra.org/investor_information/smart/bonds/306000.asp

9. Justyna Franc-Dabrowska, "Does Dividend Policy Follow the Capital Structure Theory?," Managing Global Transitions 7, no. 4: 367 -- 382, p. 368. Rodolfo Apreda sets out the historical development of the theory of capital structure from Modigliani and Miller in 1958 to his own proposed adjustment for legal risk in a particularly clear and succinct presentation in "Cost Of Capital Adjusted For Governance Risk Through A Multiplicative Model Of Expected Returns," University Of Cema Center for the Study of Public and Private Governance, Working Paper Series, November 2008, number 383. papers.ssrn.com/sol3/papers.cfm?abstract_id=1305220. The Federal Reserve Bank of San Francisco (Simon Kwan, "Capital Structure in Banking," FRBSF Economic Letter 2009-37 (7 Dec. 2009) clarifies that evaluation methodologies continue to evolve and there may be conflicting decision thresholds under simultaneous but varying evaluation schema.

10. Iacobucci and Triantis (2007), ibid.

Sources used in this document:
http://apps.finra.org/investor_information/smart/bonds/306000.asp

9. Justyna Franc-Dabrowska, "Does Dividend Policy Follow the Capital Structure Theory?," Managing Global Transitions 7, no. 4: 367 -- 382, p. 368. Rodolfo Apreda sets out the historical development of the theory of capital structure from Modigliani and Miller in 1958 to his own proposed adjustment for legal risk in a particularly clear and succinct presentation in "Cost Of Capital Adjusted For Governance Risk Through A Multiplicative Model Of Expected Returns," University Of Cema Center for the Study of Public and Private Governance, Working Paper Series, November 2008, number 383. papers.ssrn.com/sol3/papers.cfm?abstract_id=1305220. The Federal Reserve Bank of San Francisco (Simon Kwan, "Capital Structure in Banking," FRBSF Economic Letter 2009-37 (7 Dec. 2009) clarifies that evaluation methodologies continue to evolve and there may be conflicting decision thresholds under simultaneous but varying evaluation schema.

10. Iacobucci and Triantis (2007), ibid.
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