Corporate bond dillemma..can anyone help ?

eeja

When one purchases a corporate bond ( other than a new issue ) one has to pay the broker upfront the 'accumulated' interest ' on the coupon of that bond.
The question then is : What happens if the corporate then fails to pay the coupon, part payment of which has already been paid by the purchaser to the broker ?
Does one get that interest element back that the purchaser has paid ?
If so, who is responsible to return it ....the broker or the purchaser ( whose name only the broker knows )
This is not a wierd purely hypothetical question as if Barclays Bank decides next month not to pay its shareholders a dividend this year, then it is not obliged to pay the coupons on its corporate bonds either, so a bond purchaser could end up paying cash in advance for a non existant coupon he will never receive !

Richard_DandR

It is part of the cost you have to pay. You have no recourse to the seller or broker.

Unless Barclays goes bust, it is likely the interest will be paid in due course. Are you certain that the coupon will not be paid if no dividend is paid?

eeja

Richard_DandR wrote: »

It is part of the cost you have to pay. You have no recourse to the seller or broker.

Unless Barclays goes bust, it is likely the interest will be paid in due course. Are you certain that the coupon will not be paid if no dividend is paid?

Good question...No, it is not certain that Barclays will renege on the coupon of their 9% corporate bond BUT under the terms of the bond they are not obliged to pay the bond coupon if no dividend is paid to their shareholders. Interestingly no mention could be found of that important bond term either on Bondscape or on Selftrade. Inexcusable.

eeja

This query becoming ever more urgent as Barclays shares down another ten percent this morning making a dividend and thus a couopon on their corporate bonds less likely.
Does anyone have a definitive answer on the question of a refund as monies were paid over in advance for accumulated interest on a coupon that might now never be paid !!

Richard_DandR

[url][/url]http://secfilings.nyse.com/filing.php?doc=1&attach=ON&ipage=5558833&rid=12#tx15325_14

page 184 (my underlining)

The Bank is not obliged to make a payment of interest on its Undated Notes and Loans excluding the 9.25% Perpetual Subordinated Bonds if, in the preceding six months, a dividend has not been declared or paid on any class of shares of Barclays PLC or, in certain cases, any class of preference shares of the Bank. The Bank is not obliged to make a payment of interest on its 9.25% Perpetual Subordinated Bonds if, in the immediately preceding 12 months interest period, a dividend has not been paid on any class of its share capital. Interest not so paid becomes payable in each case if such a dividend is subsequently paid or in certain other circumstances. During the year, the Bank declared and paid dividends on its ordinary shares and on all classes of preference shares.

If the underlined section applies to the 9% PIBs then I would read that to mean that once dividends on ordinary shares resume, they will pay the arrears of interest. You may read it differently.