Finance: What are Secured Bonds v Unsecured Bonds, and what is Non-Recourse Debt: Debentures (Subordinated and Senior)?

When a bond is secured, it means it's protected, i.e. there are assets that would be forfeited if repayment is not made. When it's unsecured... it's pretty much just a handshake.

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Transcript

00:34

something like that and the sheep were the payment form not the guarantee and

00:38

the bond was loan emic bond ursins word in fact the promise to pay was secured

00:44

but by his word or commitment to repay the loans kind of old school debenture

00:49

unsecured bonds work similarly today corporations sell debentures to Wall [Corporations sending debentures to Wall St]

00:54

Street all the time debenture being a fancy word for an

00:57

unsecured bond it's just debt that the company promises [Definition of debenture]

01:01

to pay back well if they don't then oh well and yes the debenture holders could

01:05

in theory then take ownership of the equity of the company but in reality [Debenture holders take the majority of the company equity pie chart]

01:10

unsecured bonds when not paid back almost always mean the death of the CEOs

01:15

career and likely also of the careers of all the other members of the management [Gravestones for the management board]

01:20

team so while unsecured bonds are notionally more risky than secured bonds

01:25

well this issue hasn't been tested all that often in real life okay so if

01:29

that's an unsecured bond what's a secured bond well it's one that

01:34

is secured by a specific asset or value or other stores of wealth which get [Definition of secured bonds]

01:40

forfeited if the lendee doesn't pay back the lender on time and in accord with

01:46

the terms of the debt deal example the dung and the restless' is a company that [Sign for 'The Dung and the Restless']

01:51

makes fertilizer by collecting old political speeches and grinding them up [Speeches going into the grinding machine]

01:55

selling them to farmers in the Midwest you know for a coin but they also own a [Tractor spraying crops]

02:00

pork farm which is kind of separate from their main fertilizer biz they need [Hogs Gone Wild logo appears]

02:05

money to build a bigger grinder because politicians are giving more speeches

02:10

these days you the internet and all that and they [Politician being applauded]

02:12

pledged their pork farm as collateral behind that secured bond offering that [Collateral sign on the pork farm]

02:17

is if they don't pay back the bond interest and principle on time then they

02:22

lose the pork farm to the lenders yeah and that would be a pig mistake... [Guy snorts like a pig]