A debenture bond is a bond backed only by the reputation of the issuing corporation. A mortgage bond is a corporate bond secured by various assets of the issuing firm. A convertible bond can be exchanged, at the owner's option, for a specified number of shares of the corporation's common stock. Repayment Provisions for Corporate Bonds Maturity dates for bonds generally range from 15 to 30 years after the date of issue. If the interest is not paid or the firm becomes insolvent, bond owners' claims on the assets of the corporation take precedence over both common and preferred stockholders.
Some bonds are callable before the maturity date.
Usually the corporation pays the bond owner a call premium. Financing through a bond issue differs considerably from equity financing. In the eyes of the Internal Revenue Service, interest is a tax-deductible business expense. A corporation may use one of three methods to ensure that it has sufficient funds available to redeem a bond issue. Table 19.4 compares the different types of equity and long-term debt financing.