1. The security of the bond, that is, whether the bond has collateral.
a. A security on a bond puts up collateral, which is a backing of the bond by the
selling off of the company’s assets if needed. This provision benefits the buyer,
yet one disadvantage would be the fact that often times bond collateral does not
hold up in court correctly causing the company to get out of the collateral. This
would cause a lower coupon rate.
2. The seniority of the bond
a. If a bond has higher seniority than the bond will be paid off first in the event of
bankruptcy. This provision benefits the buyer and would cause a lower coupon
rate.
3. The presence of a sinking fund.
a. This is a restricted asset of a corporation that was required to set aside money for
redeeming a bond. This is beneficial to the buyer as it adds more security to the
bond. This would cause a lower coupon rate.
4. A call provision with specified call dates and call prices
a. A call provision are terms in which a company has the right to buy a bond back
early if they have the funds to do so, this is a benefit to the company causing a
higher coupon rate.
5. A deferred call accompanying the above call provision
a. This is a provision which prohibits the company from calling a bond before a
certain date, this is beneficial to the bond holder since the bond is protected from
