What is a General-Mortgage Bond? A Comprehensive Legal Overview
Definition & Meaning
A general-mortgage bond is a type of corporate bond that is secured by a blanket charge on the issuer's assets. This means that the bond is backed by all the assets of the company, providing some level of security to investors. However, it is important to note that general-mortgage bonds may be less valuable than other bonds because they can be subordinate to prior bonds issued by the same company. This type of bond is commonly associated with the railroad industry, where it serves as a means of financing operations and expansions.
Legal Use & context
General-mortgage bonds are primarily used in corporate finance. They are often relevant in the context of bankruptcy proceedings, where the priority of claims against a company's assets is crucial. Investors and creditors must understand the implications of such bonds, especially when assessing the risk associated with their investment. Users can manage related legal documents using templates from US Legal Forms, especially when dealing with corporate financing or investment agreements.
Real-world examples
Here are a couple of examples of abatement:
Example 1: A railroad company issues a general-mortgage bond to raise funds for new locomotives. The bond is backed by the company's assets, but it is subordinate to existing bonds that have been issued earlier.
Example 2: An investor purchases a general-mortgage bond from a manufacturing company, understanding that while the bond is secured by the company's assets, there may be other creditors with higher priority claims (hypothetical example).