Most things called bonds aren't really bonds at all. Bonds encompass the wide sweep of fixed income securities.
What distinguishes between bonds in a legal sense is the collateral (assets backing up the loan) pledged and the legal rights to this collateral. Most bonds have no specific security attached to them and really should be called "unsecured debentures". This means that in a default situation, the bondholders rank equally with the other unsecured creditors of the company. Since governments do not pledge specific security, most government bonds are actually debentures. An unsecured debenture usually has a "negative pledge" which prevents the issuer from having assets secured ahead of that issue. Any bond issues which have senior issues ahead are "subordinate".
A "secured debenture" has some particular asset attached to it, say a factory, building or shopping centre. If this involves real estate collateral, these bonds are known as "mortgage bonds". A mortgage bond is different than a mortgage, which is a legal document registered against a particular real estate asset. A mortgage bond is a bond with a trust indenture which "secures" its collateral by way of a mortgage. A "first mortgage bond" has the first mortgage and senior claim on an asset or group of assets. |