The first time I received a callable bond, it was to a company that had been going out of business for a long time. I had to laugh because I had never heard of such a thing. I guess you could call the company what it was – a corporation in name only. I’m sure they had a lot of great things to say, but I’ve never heard anything but what they said.
A callable bond is basically a bond that can be called, but can’t be called back. You can call the company to see if they have assets that are worth buying, but you can’t call them back. Callable bonds, if you’ve done your homework, are the most important bonds that you can get.
Callable bonds are what we are talking about here. Imagine that you are a corporate board of directors and you are asked to take on a new position. You, like most people, might want to make all of the members of the board happy. So you call your board meeting. You make a bunch of promises, and you ask the board to vote on whether or not you should approve the new deal.
Its the callable bonds that cause the trouble. The problem is that you don’t know what its going to be. Its likely going to be a huge transaction with some complex accounting issues, but that’s ok. As long as the board members are satisfied with the transaction, they can take your callable bond (which is guaranteed to cover at least a certain percentage of the transaction) and they can call it back.
We’ve all been there, only we didn’t know what to do because we had no idea what the transaction was going to be. The thing is that the callable bond is an investment certificate that can be sold to investors. It’s usually pretty easy to sell the certificate to somebody because most financial institutions are willing to loan out money that they’ve guaranteed to pay back if you’ve bought the security.
The idea of being issued a callable bond was to hold you accountable for your actions, and this is a common theme in most things.
The fact is that people invest in the bond in the hope of making some money back or to borrow some money. But with a bond you actually cannot just borrow money from the bank, you have to actually make some money. So it is possible that, as a corporation, you issue callable bonds and then not only will you owe those bonds to investors, but you also might be in breach of that bond.
So the bond is a common thing for corporations to use, and the fact that it is actually a bond is a good thing. The problem is that, unlike a normal bond, you don’t actually have to actually make money back from the bond. You just get a guarantee for the bond to be called in the event that you fail to meet your commitments. That is, if your company goes bankrupt, you will still be responsible for this liability, just like any other liability a corporation might have.
I would call that good. What I would not do is call it a debt. A debt is something you actually have to pay back. But a bond is something that you can just call and get the money. You can say “I’m not going to pay you back for this bond, so I’m giving it to you.
A bond is something that you have to pay back for. If you don’t pay back then the bond is likely to go bad and you might have to pay the whole amount back in your own account.
