What is debt security?
When a company needs operating funds, it can either raise it through equity or borrow from another. The amounts thus borrowed are called debt securities and they attract interest at agreed rates till the loan amount is repaid in full. Companies like “Credit Solution” help reduce debt and improve credit rating. They mean borrowing
by the company, while equity securities represent ownership of the issuing company.
While a civil debt court cannot garnish Social Security disability checks, they can attach one’s assets. Debt security prices and interest rates are inversely related because with increasing interest rates, investors would rather go for newer securities than stay with the older ones at lower rates. A security deed and a deed to secure debt are one and the same.
Lending companies look at a person’s debt and repayment history and also the level of clearance sought, before they rate a person as credit-worthy or deny security clearance. Debt securities are assets that have priority over equity securities. While equity means owning shares of the company, in case of bankruptcy, the debtors
get first settlement. The Treasury bill is a perfect example of debt security. Being sued for credit card debt has no claims whatsoever on a fixed social security income.
Corporate debt security is an IOU that denotes the promise of a company to repay a loan with interest within a specified period. The face value of a debt security is its price as quoted in the Certificate of Issuance and is said to be at a Premium when sold at a higher price. The yield
of the security is the difference between the cost price and the sale price, coupon/interest rate.
Governmental entities can issue conduit debt securities also called municipal bonds, for the use of the organization which becomes the conduit bond obligor. The ways one can benefit from investing in securities are either the interest earned from the security or by capital gains when it is sold at a premium.
Quoted debt securities have to be registered with SEC, Zambia though mostly they stay on the LuSE’s quoted tier. After the registered debt securities are traded in the open market, they get listed and become listed debt securities. Various factors like credit quality, interest rates, tax status etc determine the price of a debt security.
Types of Risks with regards to debt securities are Default risk, Interest rate risk and Reinvestment rate risk. Trading in securities poses risk of Counter Party Risk, where the person is unable to fulfill the contract for whatever reason, and Price Risk, where the expected rise in the share prices does not happen.
One can secure a debt transaction through a Promissory Note, a Check, or mortgage of real estate
or loan contract. Our Benchmark Securities program is purchase of mortgage loans funded by sale of debt securities in capital markets. Retail debt securities are ones sold to retail customers. Securities issued by Government and Quasi-government bodies are debt market securities. Bonds, debentures and notes are securities that fall under Debt category.