Registered Bond

Registered Bonds refer to a specific type of bond where the issuer records the details of a bondholder to ensure payments (principal, interest, or both) are made to the right entity. Such bonds contain details like the owner's name, address, or other contact information registered in the issuing company's records.

Bond information can be recorded on a physical copy of the debt instrument itself, such as a bond certificate. However, given advancements in technology, an electronic register may be maintained by bond issuers or a third party appointed by them. This ensures that only registered owners receive the promised profit upon payment.

• Registered Bonds are debt instruments like other bonds, where an issuer records a bondholder’s information and updates it as and when needed.
• Such bond certificates contain an owner's name, address, and other contact information registered in an issuing company's records. This specificity ensures that only registered owners are recognized as eligible to receive profits on the day of interest payments.
• These bonds are dated per their date of authentication, meaning every rightful bondholder will receive payments despite any change/s in ownership.
• The transferability of such bonds can be challenging because a new owner must be registered by the issuing party, and their records must reflect the ownership change.

Registered bonds, similar to other bonds, are debt instruments, except the issuer records the information about the holder. The issuer collects the name, address, and other contact details for registration. This is done to ensure that the coupon of the bond is paid only to the registered holders. This means that even if a person has a bond certificate, they will only be paid if they are on the registered list of the issuing party.

These registered owners receive the agreed-upon profit rate on the interest payment date. Another advantage of being registered is that, even if the bond is lost, stolen, damaged, or destroyed, it can be easily replaced as the information of the owner is already available and recorded. Like other bonds or debt instruments, these bonds are issued for the same purpose or reason. They offer companies a way to find funding sources for large-scale projects. From an individual’s perspective, they are low-risk investments that provide a reliable income stream.

These bonds are dated per their date of authentication. However, it is different if any registered bond is authenticated and delivered in exchange for, in place of, or in the transfer of any bond with respect to which an event of default on the payment of interest has occurred and is ongoing. In such cases, it must be dated in such a manner that the bond will bear interest beginning on the date on which the interest would have been paid on the (previous) preceding date unless specifically stated in the bond indentures. Bond indentures provide detailed information on the terms and clauses associated with bond agreements. This ensures no rightful bondholder loses interest payments due to adverse or default situations.

These bonds may be transferred to a different owner only when authorized by the registered owner. When this happens, the issuing authority or party updates its records and includes the new bondholder in its registry.

In this section, we will study how these bonds work.

Example #1

Suppose Leah purchased a registered bond. Upon purchasing it, the issuing authority obtained Leah’s details and printed her name and address on the certificate. Now, Leah intended to transfer it to Adam after some time. In order to do that, she signed the certificate and presented it to the issuer's transfer agent.

Upon receiving this request, Steve, the transfer agent, canceled the certificate and issued a new certificate with Adam’s (the new owner) details. When Adam was registered as a new owner and the bond certificate was issued, payments were made to him from then on.

Example #2

Suppose Dana, an investor, invested in a thirty-year bond. Time passed, and over the years, Dana developed some medical issues, and her health deteriorated. Subsequently, only ten years were left for the bond to mature.

Dana owed her friend, Jack, some money. Given her condition, Jack and Dana mutually decided that Dana would transfer a few bonds and security certificates in his name to repay his debt. Due to her sickness, Dana forgot that one of the certificates was a registered bond. Hence, she did not follow the prescribed procedure to transfer it in Jack’s name.

Jack only learned about this registered bond after Dana's demise. Therefore, he did not receive any interest payments upon its maturity since he was not registered as its owner. This illustrates the importance of transferring a bond and registering it in a new owner’s name, as mere transfer of possession does not translate to actual ownership.

Example #3

In this example, we see a pictorial sample of a registered bond.

Source

Cleveland, Cincinnati, Chicago, and St. Louis Railway Company (CCC&StL), popularly known as the Big Four Railroad, was a railroad business in the United States (Midwestern region). It worked in collaboration with the New York Central System. The company issued bonds for a specific project. In the above picture, the bond worth $50,000 carries its owner’s name and signature.

We have discussed the unique features of registered bonds in the sections above. Let us discuss how these bonds are different from bearer bonds. The table below outlines some key differences between registered and bearer bonds.

This has been a guide to what is a Registered Bond. Here, we explain the concept in detail along with its examples, and differences with bearer bond. You may also have a look at the following articles -

• Types of Bonds
• Serial Bond
• Callable Bonds