What is a Collateral Trust Certificate?
Collateral trust certificates are bonds issued by a corporation that are secured with the use of assets that are in the possession of another business entity. In most cases, a collateral trust certificate is backed with underlying securities that are directly owned by a subsidiary of the company issuing the bond. In effect, this creates a situation where a corporation is borrowing against the assets owned by the subsidiary, rather than against assets that are owned by the company proper. There are a couple of common scenarios in which a corporation would choose to structure a corporate bond issue with a collateral trust certificate approach. First, the company may not wish to commit assets that are in the direct control of the corporation to the bond issue. However, a subsidiary may have assets that are not considered essential to the operation of that entity, and thus may be freely utilized to act as securities for the bonds that the company wishes to issue. Next, the assets that are
” Collateral trust certificates are bonds issued by a corporation that are secured with the use of assets that are in the possession of another business entity. In most cases, a collateral trust certificate is backed with underlying securities that are directly owned by a subsidiary of the company issuing the bond. In effect, this creates a situation where a corporation is borrowing against the assets owned by the subsidiary, rather than against assets that are owned by the company proper. . There are a couple of common scenarios in which a corporation would choose to structure a corporate bond issue with a collateral trust certificate approach.
