A legal claim on collateral that has been pledged, usually to obtain a loan. The borrower provides the lender with a security interest on certain securities/assets which can be repossessed in the event that timely obligation payments are not met. |||In the event that the lender fails to uphold a proper debt repayment schedule, the holder of the security interest takes possession and is able to sell the underlying collateral. In the event of bankruptcy secured lenders have precedence over unsecured lenders.
A combination of a serial bond issue and a term bond issue. Essentially, the serial bond with balloon has bonds that mature at different intervals throughout the issue's life, and then a large percentage of the bonds (the term bonds) mature in the last year of the issue's term. Alternatively, the bulk of the bonds may mature at the first maturity date with the rest of the bonds gradually maturing over the remainder of the issue's life. |||All the bonds in a term issue have the same maturity date. All the bonds in a serial bond issue mature in intervals. The combination of the two creates an issue that matures at regular intervals with a large portion of the bonds maturing at the same time in the first or last interval, creating the 'balloon'.
A type of collateralized mortgage obligation (CMO) in which there are several tranches. Each tranche's holder receives interest payments as long as the tranche's principal amount has not been completely paid off. The senior tranche receives all initial principal payments until it is completely paid off, after which the next most senior tranche receives all the principle payments, and so on. |||Investors with shorter investment horizons, such as commercial banks, can purchase bonds from senior tranches in order to protect their investments from extension risk. Investors with longer investment horizons, such as pension funds, can protect their investments from contraction risks by purchasing bonds from more junior tranches.
The magnitude of a financial instrument's reaction to changes in underlying factors. Financial instruments, such as stocks and bonds, are constantly impacted by many factors. Sensitivity accounts for all factors that impact a given instrument in a negative or positive way in an attempt to learn how much a certain factor will impact the value of a particular instrument. |||Interest rates are one of the most important underlying factors in the movement of bond prices and are closely watched by bond investors. These investors get a better idea of how their bonds will be affected by interest rate movements by incorporating sensitivity into their analyses.
A specific type of loan to a business entity, which possesses certain characteristics of both asset-based loans and cash-flow loans. Senior stretch loans are cheaper than straight cash-flow loans, since the borrowing company has a healthy balance sheet and generates sufficient cash flows to satisfy their obligations. |||Senior stretch loans usually provide financing that is equal to more than the total lending value of the borrower's current and fixed assets. However, the borrower must show the capacity to repay this type of loan either through high operational cash flows or a strong balance sheet consisting of a substantial asset base.
A security (usually debt) that, in the event the issuer goes bankrupt, must be repaid before other creditors receive any payment. |||In the event of liquidation, senior debtholders have seniority and are repaid before the junior debt. This is also known as "unsubordinated debt".
A bond or other form of debt that takes priority over other debt securities sold by the issuer. |||In the event the issuer goes bankrupt, senior debt must be repaid before other creditors receive any payment.
A 20-year non-marketable U.S. government savings bond that pays semi-annual interest based on a coupon rate. This coupon is locked in at a fixed rate for the first 10 years, after which it is reset by the U.S. Treasury for the rest of the bond's life. Interest on Series HH bonds is exempt from state and local - but not federal - taxes. |||Series HH bonds were no longer available for purchase or exchange as of August 31, 2004. Denominations were available in amounts ranging from $500 to $10,000 with no capital appreciation potential, but early redemption and exchange options after six months. For many current HH bondholders, once the 10-year locked in rate expired, the coupon rate would fall as low as 1.5%. Investors should calculate the real return being earned to determine whether holding onto these bonds is the wisest choice or if the money received in redeeming the bonds could be put to better use in higher yield securities.
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