Bonds v Loans

WHY INVEST? MAKE $$.

WHY STOCKS? MAKE DIVIDEND $$ OR BUY LOW SELL HIGH.

WHY FIXED INCOME? MAKE COUPON $$, LESS BUY LOW SELL HIGH. "SAFER"

SIMILARITIES

• LENDER = INVESTOR

• BORROWER = DEBT INSTRUMENT ISSUER

• BORROWER RECIEVES $$$ FROM LENDER

• BORROWER PAYS INTEREST TO LENDER

• BORROWER RETURNS PRINCIPAL TO LENDER

• INTEREST OR NO INTEREST, FIX OR FLOATING RATE

• TERM + CORP ACTION NUANCE

• BDC = EQUITY

• CLO = EQUITY

• CLO TRANCHE = EQUITY W/ SPECIFIC RISK/RETURN PROFILE, LOAN EXPOSURE

• CDO = SUBPRIME MBS, MORTGAGE DEFAULT

• CLO = SUBPRIME BANK LOANS, CORP DEFAULT

DIFFERENCES

• ??

• LOANS CAN BE SECURED?

• BOND TERMS SET BY BANK DCM TEAM

• BOND PRIMARY MKT DISTRIBUTION BY SYNDICATE TO MULTIPLE INVESTORS

• LOAN DIRECT DISTRIBUTION BORROWER <> LENDER?

• BANKRUPTCY REPAYMENT PRIORITY (LEGAL CAP STRUCT CLASSIFICATION)

• REFINANCING / ROLLING?

• PIK?

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RESOURCES

https://www.citi.com/personal-loans/learning-center/basics/bond-vs-loan

https://www.guggenheiminvestments.com/perspectives/portfolio-strategy/understanding-collateralized-loan-obligations-clo

https://usmutualfunds.rbcgam.com/us/article/evaluating-loans-vs-bonds/detail

https://www.americanexpress.com/en-us/credit-cards/credit-intel/collateralized-loan-obligation/

https://www.investor.gov/introduction-investing/investing-basics/investment-products/closed-end-funds/publicly-traded-business-development-companies-bdcs

https://corporatefinanceinstitute.com/resources/financial-modeling/capital-stack-structure-debt-equity/

https://www.invesco.com/il/en/insights/why-clo-equity-now.html