Question

what is a secured bond?

Answer 1

Bonds are debt instruments hence, there are chances that corporations issuing bonds might take away the bond amount and commit a fraud. There is an inherent credit and fraud risk in the bonds. To mitigate such risk secured bond comes in the picture.

Secured bond are those bonds that requires the issuer to pledge specific assets as collateral in the case of default. Secured bonds are usually more popular with businesses or governments that are less likely to be able to pay their debts in the future.

Interest on these bonds isn’t enough to attract investors. Companies and local governments will less than stellar past financial track records usually need to assure inventors that they will not default on their future principle and interest payments. And if they do default, ensure the investors don’t walk away empty handed.

Example, Apple Inc. has issued secured bonds worth $1 million and pledged one of it's manufacturing facility valuing $2 billion against such bonds.