Debentures, Mortgage Bonds & Commercial Paper — Q&A

Short-term, unsecured corporate zero coupon debt sold at a discount maturing at par. Bonds with 270 days or less to maturity are exempt from SEC registration — a key regulatory threshold.

It must be repaid within 270 days. It provides quick short-term cash but cannot fund multi-year projects.

A long-term, unsecured (“naked”) corporate bond — full faith and credit with no pledged collateral. Without collateral, investors face more risk and demand higher coupons and yields.

No. ⚠️ A third party’s promise to pay is support, not collateral. Guaranteed bonds remain unsecured — secured status requires specific pledged assets.

Parent companies (co-signing for subsidiaries) and insurance companies (e.g., Ambac insuring a municipal bond).

They emerge from bankruptcy restructuring and pay interest only if earnings are sufficient — the name “income” is misleading. Many never pay interest or principal and can become worthless; they suit only aggressive, speculative investors.

Mortgage bonds — real estate. ETCs — equipment (vehicles, planes, construction gear). CTCs — marketable assets (investment portfolios, subsidiaries). ⚠️ Don’t confuse the three secured types.

First mortgage bondholders receive collateral sale proceeds first until paid in full (lower risk). Second mortgage holders receive only leftover proceeds — riskier, lower prices, higher yields.

Mortgage bonds (utilities own valuable real estate to pledge). Commercial paper is typically issued in large denominations — often $100,000 or more — limiting direct retail access.