Guaranteed Bonds

Source: Encyclopedia of Banking & Finance (9h Edition) by Charles J Woelfel
(We recommend this as work of authority and you can order it here)

Bonds, the payment of the principal, interest, or both of which has been guaranteed by a party other than the original debtor.  Railroad and industrial corporations sometimes guarantee the bonds and notes of leased or controlled companies, subsidiaries, or companies in which they are financially interested in order to strengthen their credit or to elevate their investment position.

While the market value of bonds guaranteed by another party is undoubtedly enhanced by such guaranty, investors should not purchase this class of bonds because of the guaranty alone.  Such bonds should be intrinsically sound in themselves without the guaranty, since it may be difficult to enforce the guaranty against the guarantors in case of default of the principal debtors in an action at law.  Guaranteed bonds should be supported by sufficient security to meet the principal and interest, and the guaranty should be in such form as to compel the guarantor to meet any deficiency on the part of the principal debtor.

When bonds are guaranteed after their issue, the guaranty appears in a separate instrument, and the fact of guaranty is not recited on the face of the bond at all.  When bonds are guaranteed by endorsement, the fact of guaranty is stated on the face of each bond which contains the signature of the guarantor company.

Guaranteed bonds are similar to ASSUMED BONDS and endorsed bonds.

See ENDORSED BOND

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