Some bonds may contain special features and risks that warrant special attention. These include bonds:
1.Risk associated with perpetual debentures
Perpetual debenture does not have a maturity date, and the coupon paymentspay-out depends on the viability of the issuer in the very long term, it may be deferred or even suspended subject to the terms and conditions of the issue. Furthermore perpetual debentures are often callable and/or subordinated, and bear reinvestment risk and/or subordinated bond risk, detailed below.
2.Re-investment Risk of Callable Bond
If the bond is callable in which the issuer may redeem the bond before maturity, it is subject to reinvestment risk. The yield received when re-investing the proceeds may be less favorable.
3.Risk associated with subordinated debentures
Holders of subordinated debentures will bear higher risks than holders of senior debentures of the issuer due to a lower priority of claim in event of the Issuer’s liquidation. Subordinated debentures are unsecured and have lesser priority than that of an additional debt claim of the same asset. They usually have a lower credit rating than senior bonds. Investor’s specific attention is drawn to the credit information of this product, including the respective credit rating of the Issuer, the debenture and/or the guarantor, as the case may be.
4.Risk associated with variable coupon/ coupon deferral features
If the bonds contain variable and/or deferral of interest payment terms and investors would face uncertainty over the amount and time of the interest payments to be received.
5.Risk associated with extendable maturity date
If the bonds contain extendable maturity dates terms and investors would not have a definite schedule of principal repayment.
6.Risk associated with convertible or exchangeable debentures
They are convertible or exchangeable in nature and investors are subject to both equity and bond investment risk; and/or that have contingent write-down or loss absorption feature and the bond may be written-off fully or partially or converted to common stock on the occurrence of a trigger event.