DEFINITION of Joint Bond
A joint bond is a bond that is backed by an issuer and one or more additional guarantors.
Bond guaranteed by two or more obligors (guarantors), one of them being the issuer. The assets of all the guarantors can be called upon to pay the bondholders if a default occurs.
WHAT IT IS IN ESSENCE
A company that wants to raise capital using bonds may choose to issue joint bonds if it generates low or fluctuating levels of revenue. The company’s obligations on joint bonds are backed by at least one other party that guarantees to fulfill the obligations if the issuer becomes insolvent or bankrupt.
Joint bonds are also called joint and several bonds. That means the obligations that the issuer and its guarantors share together and independently. In other words, if a guarantor is called upon to make payments and refuses, that guarantor is also considered to be in default.
Guarantors for joint bonds are typically more solvent companies. For example, suppose some company wishes to issue bonds to finance its expanding operations. But the market has some concerns about that company’s long-term ability to meet its obligations. Such company may approach some other, bigger company to be a guarantor on its joint bonds. If a bigger company agrees, it will be equally responsible for interest and principal payments on bonds.
HOW TO USE
Joint bonds are beneficial for small subsidiary companies because they can have their parent companies serve as guarantors. Also, speaking about personal finance, joint bond-ownership encourage by the banks. It is increasingly used by cash-strapped couples, family members, or friends as a convenient way to buy a home, for example.
The banks like to have joint bond debtors as this reduces their chances of being let down on the bond payments.
This means that each of the partners is responsible for, and can become liable if another partner defaults on their bond repayment.