income bond

Income Bond

A type of debt security in which only the face value of the bond is promised to be paid to the investor, with any coupon payments being paid only if the issuing company has enough earnings to pay for the coupon payment.

Notes:

The income bond is a somewhat rare financial instrument which generally serves a corporate purpose similar to that of preferred shares. It may be structured so that unpaid interest payments accumulate and become due upon maturity of the bond issue, but this is usually not the case as such, it can be a useful tool to help a corporation avoid bankruptcy during times of poor financial health or ongoing reorganization.

See also: Bankruptcy, Bond, Coupon, Maturity, Maturity Date, Reorganization

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Income bond

A bond whose payment of interest is contingent on sufficient earnings. These bonds are commonly used during the reorganization of a failed or failing business.

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income bond

A long-term debt security in which the issuer is required to pay interest only when interest is earned. This rare security, issued principally as part of a corporate reorganization, offers an investor a relatively weak promise of payment. Some issues require that unpaid interest be accumulated and made up in periods that earnings permit. Also called adjustment bond.