Exchange Traded Debt Issues – Baby Bonds – By Yield
By: Tim McPartland,
Exchange Traded Debt issues are also known as ‘Baby Bonds
Exchange Traded Debt Securities are notes and bonds that are traded on the stock exchanges instead of the bond markets. Exchange Traded Debt mostly carries maturies of 30 years or more (although a few are just 10 years etc). Most of these securities pay interest payments quarterly. Most exchange traded debt issues are ‘junior’ to the companys secured debt and senior to preferred and common shares.
Most of the issues are $25.00/share issues and generally are callable at $25.00 plus accrued interest 5 years from the date of issue.
Caution should be used when purchasing these debt securities when the 5 year first call date is approaching. In an environment of falling interest rates companies will be ‘refinancing’ as much debt as possible at lower interest rates. If you purchase at a price above $25 you will incur a capital loss if the issue is called.
Note that a good share of the exchange traded debt issues are investment grade issues. This makes these issues good issues to be considered by those that like preferred shares as they are very similar (except they are one step higher on the ‘claim’ ladder in a bankruptcy).
Note that the distributions on these securities are considered interest and thus are not eligible for the reduced qualified tax rate.