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What Is a Joint Bond?

Alex Newth
Alex Newth

Most bonds are issued by one guarantor, but a joint bond features at least two guarantors. Many businesses and institutions do not like absorbing the risk of a joint bond, so this most commonly is done between parent and child companies or through affiliates. This bond is secured, so the holder will get his money unless all the guarantors run out of money and have nothing with which to pay the holder. If one company in this cooperation defaults, then all the other cooperating companies must use their assets to pay the bond’s value.

The majority of bonds are issued and guaranteed by one party, but a joint bond features more than one guarantor. At the same time, there usually is just one issuer, typically the company that asks others to become guarantors. Aside from having a business relationship, this alliance may occur so a smaller company can offer a secured bond even though it has few assets or so all the involved companies get a piece of each bond’s initial investment.

Man climbing a rope
Man climbing a rope

The risks of becoming a guarantor in a joint bond mean most companies refuse joining another company in this way unless necessary. When a parent or child company issues bonds, the other often will help secure the bond by becoming a guarantor. Affiliated businesses also commonly enter into this relationship. This is because the businesses have a trusted relationship and, because they already are working together for other purposes, this is just another part of them doing business.

Except under extreme circumstances, each joint bond is secured. This means that, if a business has any money with which to pay, it will pay investors the value of their bonds. Secured bonds often have less growth but, just in case all the companies guaranteeing the bond collapse, investors should still be paid regardless of economic conditions. Businesses commonly leave money to the side to pay for such a bond’s expense, and it rare that a secured bond holder does not get paid.

One of the biggest problems of entering a joint bond agreement with another company is the risk factor. While it is not common, one of the companies may default on payments. When this occurs, all the other businesses involved in the deal become responsible for paying the investor. All the businesses normally are liable for paying part of this bond but, if one or more companies cannot pay their share, then the companies left end up paying more than they intended.

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