A bond which is backed by a party other than the issuer. In other words, the bond’s interest and principal are backed by third party (such as a company, bank, insurance firm, etc). A guaranteed bond is issued by one firm and guaranteed by one or more other firms. Actually, guaranteed bonds are debentures (i.e., unsecured bonds) of the guarantor. However, if the guarantor has higher credit quality than the issuer, the bonds would be of higher credit quality, and thus have greater value.
Guaranteed bonds are typically issued by joint ventures. They may also result from a parent-subsidiary relationship, where a parent company backs the bonds issued by its subsidiary.
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