A secured bond is a type of investment in debt that is secured by a specific asset owned by the issuer. The asset serves as collateral for the loan. If the issuer defaults on the bond, the title to the asset is transferred to the bondholders.
Secured bonds may also be secured with a revenue stream that comes from the project that the bond issue was used to finance.
Secured bonds are seen as less risky than unsecured bonds because investors in them are at least partially compensated for their investment in the event of default by the issuer.
Types of secured bonds include mortgage bonds and equipment trust certificates. They may be collateralized by assets such as property, equipment, or an income stream.
- A secured bond gives the investor first rights to certain collateral in case the issuer defaults on the payments.
- Utilities and municipalities often issue secured bonds.
- They offer slightly less interest in return for their greater safety.
For example, mortgage-backed securities (MBS) are backed by the titles to the borrowers’ homes and by the income stream from mortgage payments. If the issuer does not make timely interest and principal payments, investors have rights to the underlying assets as repayment.
The risk of loss occurs if the collateral falls in value or is unsaleable by the time it is in the possession of the bond investors, or if legal challenges delay liquidation of the assets.
Municipalities typically issue secured bonds that are backed by the revenue that is anticipated from a specific project. They may also issue unsecured bonds, known as general obligation bonds, that are backed by the city or town's taxing power.
Secured bonds are not risk-free. There is the risk that the collateral will fall in value or be unsaleable when it is transferred to the investors.
In some cases, investors’ claims to collateral are challenged in the courts. There are costs and delays inherent in responding to legal challenges. In this and other cases, investors may lose some of their principal investment.
Companies that have significant real estate and holdings or other assets may issue mortgage bonds using those assets as collateral.
Many utility companies are able to secure loans at a lower cost by using their substantial land, power plants, and equipment as collateral. Because the bonds carry less risk, they offer lower interest rates than unsecured bonds. Their bondholders have the first claim to the underlying property in case the company does not make principal and interest payments as scheduled.
A first mortgage bond contains a first mortgage on at least one of the issuer’s properties. That gives the bondholder the first claim on the underlying assets in case of default.
If the issuer has enough cash, rather than selling the underlying assets it may use the cash to pay off the first mortgage bondholders before others.
An equipment trust certificate is backed by an asset that is easily transported or sold. The title to the equipment is held by a trust.
Trust certificates as generally issued to provide the cash to purchase equipment or finance operations. The company makes its scheduled payments to the trust, which pays the principal and interest income to investors. When the debt is repaid, the asset’s ownership transfers from the trust back to the company.
Do you or a loved one need to make bail? What are your options?
You’ve probably read about secured and unsecured bail, and you’re not exactly sure what the difference is, or what they mean.
Perhaps you or a loved one have been offered one or the other, you’re not sure which one is which.
In this article, we’ll go over some of the key differences between the different types of bails in North Carolina. Hopefully, you’ll be able to work with your bondsman or court to make the best decision for you.
What is Bail?
In order to understand what unsecured bail is, you’ll need to understand what bail is in the first place.
Bail is the amount of money the courts set that you must pay in order to gain your release from jail. The release is conditional, at least until you appear in court for your trial.
The amount of bail, and the type of bail, you’re offered will depend on the crime you’re accused of.
For example, if you’re accused of shoplifting an electronic item, your bail might be quite low, or even unsecured.
But, if you’re accused of a heinous crime like kidnapping and murder, the state may not grant you bail.
Bail is also a guarantee that you’ll show up to court. You must pay a portion of your bail in order to secure release. You’ll also have to sign a petition that states that you’ll appear in court at the appointed time.
If you don’t comply, you will be responsible for the entirety of your bail.
If you do comply, the bail will be wiped clean and you won’t owe the rest of it to the county.
Secured Bail
Secured bail, or secured bond, is what they give individuals who have likely been accused of more serious crimes, but not ones that are heinous enough to warrant being held without bail.
The state will also grant secured bail if they have reasonable doubt to think you will flee before trial or fail to appear in court.
With a secured bail, you can get out of jail by paying 10% of bail above $1,000 in what’s known as a surety. For example, if your bail is set at $2,000, you’ll pay a surety of $200. You don’t have to pay it yourself; you can have a family member or friend pay it on your behalf.
If you can’t pay it at all, a bondsman will help you pay the owed amount.
Secured bail, however, comes with extra strings attached. You must have collateral the bail bondsmen can collect on if you fail to comply with the state. You will need some type of assets, such as a car or home, to place on the line.
If you do not show up to court, you can forfeit the bail fee by paying the rest of it yourself. Or, you can allow the state or county to take away your assets.
What Happens If You Have No Assets?
If you have no assets, someone can co-sign for you. This person’s assets will then be up for lien if you do not make it to your court appearances. Effectively, they take responsibility for you. They must also report you if you flee.
A person who co-signs can also set conditions to their co-signature. For example, they can state that if you do not attend AA or NA once a week while out on bail, they can revoke the co-sign and you can be rearrested.
What is Unsecured Bail?
Unsecured bail is similar to bail in that it is an amount of money you need to pay, in theory, to secure your release until trial.
Unsecured bail is typically granted to people who do not have criminal records and may be first time offenders. They are also not being held for a serious crime, and the state has no reason to suspect they will flee.
Instead of paying money to gain your freedom, you’ll simply sign a declaration that states that you will attend all of your court hearings and comply with the conditions of the bail. Failure to do so can result in you owing the bail money to the state.
However, the state, nor bail bondsman, takes any sort of collateral to guarantee this. They are basically making a statement that they trust you to appear.
What Conditions are Attached to Bail?
Both secured and unsecured bail will have conditions attached to them. It is up to the court to make them.
They may include asking you to refrain from speaking to a certain individual or coming in contact with them, particularly in the case of domestic violence.
You may be asked to refrain from drugs or to stay in a certain area. The state can give you an ankle monitor to ensure you don’t wander off. They can also request drug tests randomly and at any moment.
Which Type of Bail Should You Ask For?
Unfortunately, you cannot ask for a type of bail, although you may suggest it. Most of the time, whether it is unsecured bail or secured bail is up to the court at the time. Your preference really does not matter at the moment.
Unsecured bail, however, is the best scenario for you, as long as you cooperate with the state.
If you or someone you love needs to make bail, contact us immediately. We can help reunite you with your loved ones. We’re also open 24 hours a day, seven days a week. We’re there when you need us.