What is a fixed bond’
Fixed debt obligation (or a fixed amount of debt) is debt which is issued in respect of specific assets with a fixed rate of interest for repayment. These financial instruments are typically used by companies to raise funds to Finance activities in the short term. In order to ensure loan companies sign in specific assets (e.g., real estate) in favor of the lender. This is because the loan does not have any other form of support.
The destruction of fixed debt obligations’
Fixed bonds allow the lender restrictions of the mortgaged property, to repay the loan. For example, the developer can sign one of the apartment buildings as a Substrate for the loan. Then the lender can limit the company from the sale of this property, or even leasing units for the duration of the loan. The lender may establish these restrictions to prevent the borrower (company) that the lender perceives as risky or incorrect financial decisions.
Once the loan is repaid in full, the borrower will not restore full control over their assets. At the same time, the borrower repays the loan in the specified step. These payments include interest at the prescribed rate. If the company is defaulting in their payments, the lender can either allow the borrower to sell assets or sell the assets themselves.
Fixed bonds and floating notes
A fixed bond is an alternative to floating bonds. In floating bonds, a whole class of assets must be signed by the lender. However, in floating bonds, the lender generally has no control over the mortgaged property. For example, a manufacturing company of borrowing money at a fixed bond, you may have to sign up for its main factory building to the lender. Until the loan is repaid in full, the lender may limit the company from the sale or sublease of the property.
However, floating bonds, the company may sign over all the stocks that he holds in his factories. This list is constantly changing, but still has value. Floating collateral debt obligations, the company would still be able to sell your inventory as usual, although it was signed on the lender. Then the company needs to regain control over all its reserves after the loan was repaid in full.
Floating bonds can also be turned into fixed debt obligations. There may be certain conditions for the lender that will lead to debt “crystallize” and turn from floating to fixed. They usually include default and liquidation.