Underlying Debt

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Dictionary Says

Definition of 'Underlying Debt'

In municipal bonds, underlying debt relates to an implicit understanding that the debt of smaller governmental entities might also be backed by the creditworthiness of larger governmental entities in the jurisdiction. On their own, these smaller entities might have a difficult time raising funds if they did not have a robust financial position. However, the implicit backing of larger entities facilitates borrowing by smaller entities and allows them obtain lower interest rates on their debts. The municipal bonds would be considered the underlying debt.
Investopedia Says

Investopedia explains 'Underlying Debt'

This situation of smaller municipal debts being implicitly backed by larger governmental entities is quite common in practice. This occurs where smaller entities like cities and school districts offer bonds to the public to finance operations and new initiatives. If a smaller entity is unable to repay its debts, it is unlikely that the city or school district will simply be allowed to become insolvent and cease operations. Rather it is expected that the state will intervene to provide emergency funding to continue debt service and maintain essential services.   
Search results for

'Underlying Debt'

  • Collateralized Debt Obligations: From Boon To Burden

    http://www.investopedia.com/articles/bonds/09/collateralized-debt-obligations.asp
    ... Market Although CDOs are made up of many different types of borrowing instruments,
    the troubled CDO market made mortgages the main underlying debt instruments. ...

  • Series 7 Study Guide - Derivatives - Other Options | Investopedia

    http://www.investopedia.com/exam-guide/series-7/derivatives/foreign-currency-debt-options.asp
    ... There are two kinds of listed debt options: Price-based options give their holders
    the right to purchase or sell a specified underlying debt security. ...

  • What is the difference between convertible and reverse convertible ...

    http://www.investopedia.com/ask/answers/05/reverseconvertiblebond.asp
    ... convertible bonds tend to trade at a premium. If the underlying debt or equity
    decreases in price, the conversion feature will lose value. ...

  • Profit From Mortgage Debt With MBS

    http://www.investopedia.com/articles/06/mortgagebackedsecurities.asp
    ... How They Are Formed MBS are debt obligations purchased from banks, mortgage companies ...
    Plus, they'll get any principal prepayments from the underlying mortgages. ...

  • CFA Level 1 Study Guide - Fixed Income Investments - Assumptions ...

    http://www.investopedia.com/exam-guide/cfa-level-1/fixed-income-investments/traditional-yield-curve-measures-assumptions.asp
    ... 11.24 Sales and Leverage; 11.25 Effects of Debt on the Capital ... 14.40 Assumptions
    Underlying Traditional Yield Curve Measures; 14.41 Importance of Reinvestment ...

  • CDOs And The Mortgage Market

    http://www.investopedia.com/articles/07/cdo-mortgages.asp
    ... This aspect pertains to any CDO regardless of whether the underlying cash flows
    come from mortgages, corporate debt, or any form of consumer loan structure. ...

  • Consider Prime Rate Funds For More Income

    http://www.investopedia.com/articles/mutualfund/08/prime-rate-funds.asp
    ... Cons At the other end of the spectrum, bankruptcy of any of the underlying bond
    issuers can result in a loss. While senior debt holders are first in line for a ...

  • How many types of markets can an investor choose from?

    http://www.investopedia.com/ask/answers/06/marketstoinvest.asp
    ... types of debt including mortgage-backed securities and collateralized debt obligations. ...
    are securities that derive their value from an underlying asset such as ...

  • Why Are Mortgage Rates Increasing?

    http://www.investopedia.com/articles/pf/07/secondary-market.asp
    ... tranches will have an equal or lower credit rating than the pool of underlying
    mortgages. (To learn more about this, see Profit From Mortgage Debt With MBS ...

  • How are bonds rated?

    http://www.investopedia.com/ask/answers/09/bond-rating.asp
    ... Specific bonds, such as hybrid securities, require additional complex analysis,
    such as the underlying terms of the debt. Overall ...

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