Busted Bond

AAA

DEFINITION of 'Busted Bond'

Bonds issued by an issuer who failed to pay the required interest payments or principal amount to the debt holder (or both). The issuer of a busted bond would be considered bankrupt and would have to liquidate his or her assets to repay the bond holders.
The terms "busted bond" can also refer to convertible debt securities that have an insignificant conversion value because conversion price is much higher than the market value of the underlying securities.

INVESTOPEDIA EXPLAINS 'Busted Bond'

In the event that a bond becomes busted, the issuing firm would be forced to file for bankruptcy, as the terms of their debt had been violated. Busted bonds in default are worth much less than the discounted value of their cash flows.
Busted bonds that arise from a decline in the price of the underlying asset, such as convertible bonds, are not in violation of their covenants - they are simply worth less than equivalent securities with embedded options and are closer to being in the money.

RELATED TERMS
  1. Revertible

    Refers to a special kind of convertible corporate bond that automatically ...
  2. Convertible Debenture

    A type of loan issued by a company that can be converted into ...
  3. Mandatory Convertible

    A type of convertible bond that has a required conversion or ...
  4. Chapter 11

    Named after the U.S. bankruptcy code 11, Chapter 11 is a form ...
  5. Convertibles

    Securities, usually bonds or preferred shares, that can be converted ...
  6. Chapter 7

    A bankruptcy proceeding in which a company stops all operations ...
Related Articles
  1. Bonds & Fixed Income

    A Primer On Preferred Stocks

    Offering both income and relative security, these uncommon shares may work for you.
  2. Bonds & Fixed Income

    Bonds: They're Not Just For Seniors

    In this article, we'll show you how investors at any stage of life can keep these fixed-income investments. Keep Reading.
  3. Bonds & Fixed Income

    Are High-Yield Bonds Too Risky?

    Despite their reputation, the debt securities known as "junk bonds" may actually reduce risk in your portfolio.
  4. Options & Futures

    5 Inflation-Beating Bond Picks

    Look beyond traditional bonds when planning long-term. The alternatives can be extremely rewarding.
  5. Insurance

    Event-Linked Bonds: Competing Against A Catastrophe

    These debt instruments can blow new wind into your portfolio, but only if you can handle the risk.
  6. Options & Futures

    An Introduction To Reverse Convertible Notes (RCNs)

    When stocks are stagnant and fixed-income yields are crumbling, RCNs come to the rescue!
  7. Bonds & Fixed Income

    Convertible Bonds: Pros And Cons For Companies And Investors

    Find out why businesses choose this type of financing and what effect this has on investors.
  8. Bonds & Fixed Income

    Convertible Bonds: An Introduction

    Find out about the nuts and bolts, pros and cons of investing in bonds.
  9. Options & Futures

    The Mandatory Convertible: A "Must Have" For Your Portfolio?

    Mandatory convertibles are a little understood security with some distinct advantages. Find out if they are right for you.
  10. Bonds & Fixed Income

    Should Junk Bond ETFs Be a Part of Your Portfolio?

    Should junk bonds be a part of your portfolio? Here's what you need to know.

You May Also Like

Hot Definitions
  1. Fiat Money

    Currency that a government has declared to be legal tender, but is not backed by a physical commodity. The value of fiat ...
  2. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  3. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  4. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  5. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  6. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
Trading Center