Income bonds, also called adjustment bonds, are the least secure and most junior of all unsecured corporate bonds. Their payments rely entirely upon the income of the issuer, and the issuer is not bound to make interest payments to investors in a timely or regular fashion. Payments are made only if the issuer can afford it, and if the board of directors votes in favor. This is "full faith and credit" pushed to the maximum limit.
Usually a minimum income level is agreed on during the bond registration process, and a corporation is required to pay interest on its outstanding income bonds, if these income goals are reached. Income bonds somewhat resemble secured bonds because of this, but there is nothing secure about counting on as-yet unearned income for your interest and principal payments.
Because missed interest payments do not accumulate for future payment, these bonds are unsuitable investments for customers seeking income. Investors must be aware of the risks involved with income bonds, and may be willing to invest if the issuer can demonstrate a reliable income record and offers either an attractive coupon rate or high yield-to-maturity.
- Subordinated Debentures (Junior Debt)
- Convertible Debentures
- Unsecured Corporate Bonds (Debentures)
- Corporate Bonds