Busted Bond

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.



comments powered by Disqus
Hot Definitions
  1. Oil Reserves

    An estimate of the amount of crude oil located in a particular economic region. Oil reserves must have the potential of being extracted under current technological constraints. For example, if oil pools are located at unattainable depths, they would not be considered part of the nation's reserves.
  2. Joint Venture - JV

    A business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task. This task can be a new project or any other business activity. In a joint venture (JV), each of the participants is responsible for profits, losses and costs associated with it.
  3. Aggregate Risk

    The exposure of a bank, financial institution, or any type of major investor to foreign exchange contracts - both spot and forward - from a single counterparty or client. Aggregate risk in forex may also be defined as the total exposure of an entity to changes or fluctuations in currency rates.
  4. Organic Growth

    The growth rate that a company can achieve by increasing output and enhancing sales. This excludes any profits or growth acquired from takeovers, acquisitions or mergers. Takeovers, acquisitions and mergers do not bring about profits generated within the company, and are therefore not considered organic.
  5. Family Limited Partnership - FLP

    A type of partnership designed to centralize family business or investment accounts. FLPs pool together a family's assets into one single family-owned business partnership that family members own shares of. FLPs are frequently used as an estate tax minimization strategy, as shares in the FLP can be transferred between generations, at lower taxation rates than would be applied to the partnership's holdings.
  6. Yield Burning

    The illegal practice of underwriters marking up the prices on bonds for the purpose of reducing the yield on the bond. This practice, referred to as "burning the yield," is done after the bond is placed in escrow for an investor who is awaiting repayment.
Trading Center