Bond Question
What happens if a company (or gov't, municipality, etc) can't make it's coupon payments, but is not actually bankrupt? Or, does that make it bankrupt by definition?
What happens if a company (or gov't, municipality, etc) can't make it's coupon payments, but is not actually bankrupt? Or, does that make it bankrupt by definition?
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No that does't qualify as bankruptcy automatically. Depending on the covenant you have on the bond, there would be some kind of penalty and negotiations with bond-holder. But it doesn't result in immediate bankruptcy.
Okay, so maybe they have to pay a higher face value at maturity, or they work out some other negotiations with the bond holder? If you know of any real examples off the top of your head, I'd love to hear them.
Here is a good example (AMBAC) in the news yesterday. http://www.bondbuyer.com/issues/119_459/ambac_bankruptcy-1019342-1.html
They couldn't come up with interest payments for is 1993 bonds...and may result in bankruptcy if forced to default on it and can't come up with new capital.
no, if the company defaults on its interest payments, it is technically bankrupt, but not necessarily in ch11
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