Question

Does collateral benefit bond issuers or bondholders? Why?

Does collateral benefit bond issuers or bondholders? Why?

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Answer #1

Collateral are assets of borrower which act as safety for lender in case the borrower fails to repay the loan. The lender can sell the collateral and realized its cash. Bond issuers are the borrowers while bondholders are the lenders who purchases bond from company. Collateral therefore benefit bondholders as their loan is secured. This is because in case of financial difficulty faced by bond issuer, bondholder can sell the assets and realized the cash amount. Thus, reducing the loss for bondholders.

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