ShmoopTube

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finance a la shmoop what are secured bonds versus unsecured bonds and

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debentures okay so that's an insecure bond but we're talking about here is an [Insecure bond hiding under the sheets]

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unsecured bond what is an unsecured bond well this is that was an unsecured bond

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old school like 15 century old school it was just a handshake one guy promised to [People shake hands]

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pay back another 400 pounds of barley in return for three sheep next year or

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

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

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

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

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Street all the time debenture being a fancy word for an

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

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

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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]

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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