Make Corporate Bonds Work for Your Portfolio

There are many ways a company can raise capital to expand its corporate reach or add a new product line. Two ways a company can raise capital are to issue stock or issue bonds. Bonds are incredibly interesting and much different than stock. Essentially a bond is a letter of debt promising to repay at some given date and show the financial situations and track records of a specific company. A share of stock is a letter of ownership in a company and may reflect many variables of a companies health such as earnings, public opinion, etc.

Bonds are often a more appealing way to raise capital than by simply applying for a bank loan because a lower rate can be obtained by the issuing company. There are a variety of bonds in the market to meet a companies needs and investor needs, so be sure that you are aware of which investment is right for you.

Companies can often get a deal the rate when a bond is back by some form of capital (secured debt). A company can also issue a bond which is not secured by capital, but generally this will require a higher coupon rate by investors (unsecured debt). Generally, well known companies that have an established track record for success will issue unsecured debt based on their good name. Most companies will prefer issuing unsecured debt because no capital is pledged as collateral. However some companies with weak credit ratings will have to issue secured debt to draw investor interest.

Some unsecured bonds may also have a conversion feature allowing them to be converted, at some point, into common stock; this makes the unsecured debt more appealing to investors by offsetting the risk.

(Coming soon!)
A complete understanding of the differences between secured and unsecured corporate bonds as well as how bonds are taxed and traded. Yield curves of bonds will be detailed.


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