Bad Paper


DEFINITION of 'Bad Paper'

Unsecured short-term fixed income instrument that is issued either by a corporation, city, state or country, that has a high probability of defaulting on their promissory notes. Since bad paper is not backed by collateral, it is sold at a discount to the equivalent collateral-backed fixed-income securities. However, in contrast to regular commercial paper which typically has a strong rating from a credit agency, bad paper does not possess this quality.


Bad paper is risky. Not only is it not backed by collateral, it is also issued by an entity that could potentially fail to meets its obligations. Bad-paper investors take on high levels of risk and, as a result, would be offered an attractive interest rate as proper compensation.

  1. Promissory Note

    A financial instrument that contains a written promise by one ...
  2. Order Paper

    1. An order paper is a negotiable instrument that is payable ...
  3. Assignor

    A person, company or entity who transfers rights they hold to ...
  4. Two Name Paper

    A nickname assigned to trade paper. Both Trade Acceptances and ...
  5. Commercial Paper Funding Program ...

    A program instituted in October of 2008 that created the Commercial ...
  6. Collateral

    Property or other assets that a borrower offers a lender to secure ...
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