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Information > Financial Terms > This page Income Bonds Bonds
on which the payment of interest is contingent upon earnings.
Income bonds usually grow out of railroad re-organizations in which
holders of defaulted mortgage bonds are required to accept income bonds.
The principal of income bonds may be secured by a mortgage, but
one that constitutes only a junior lien, or they may be collateral trust
bonds or plain debentures. Interest
on income bonds does not constitute a fixed charge and is payable out
of earnings only after all fixed charges have been met.
Failure to pay interest on income bonds, except when earned, does
not entitle the bondholders to the right to sue.
Interest is not paid if earnings are insufficient, but if the entire
interest requirements for the issue are not earned, usually such portion
as is earned may be declared payable.
Income bonds are cumulative or noncummulative, interest being dependent
on declaration by the board of directors, as in the case of stocks. Generally,
income bonds are not high-grade investments and are the least desirable
of all the bonds of a given corporation.
They usually rank just above the preferred stock. See
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