Perpetual bonds, also known as perpetual securities or perpetuals, are a type of debt security that has no maturity date. Unlike traditional bonds, which have a fixed maturity date when the principal must be repaid, perpetual bonds have no such requirement. Instead, the issuer of a perpetual bond pays interest on the principal indefinitely, or until the bond is redeemed or called by the issuer.
Perpetual bonds typically pay a fixed coupon rate, which is the interest rate paid to the bondholder, and the coupon rate is usually higher than that of a traditional bond to compensate for the lack of a maturity date. The issuer of the perpetual bond has the option to redeem or call the bond at a future date, often after a set period of time, but is not required to do so.
Perpetual bonds are typically issued by governments, financial institutions, and other large corporations as a way to raise capital for long-term projects or to fund ongoing operations. They are also used as a way to manage the balance sheet and capital structure of a company, as they can be treated as debt or equity on the company’s balance sheet.
One potential drawback of perpetual bonds is that they may be considered riskier than traditional bonds, as the lack of a maturity date means that the bondholder may not receive their principal back for an indefinite period. Additionally, the issuer may be required to pay a higher coupon rate to compensate for the lack of a maturity date, which can be costly over the long term.
Overall, perpetual bonds can provide an attractive investment opportunity for investors seeking a steady stream of income and a long-term investment option, while also providing issuers with a flexible financing option.
Some examples of perpetual bonds:
Coca-Cola Perpetual Bond: In 2010, Coca-Cola issued a perpetual bond worth $3.5 billion, which paid a fixed interest rate of 5.5%. The bond had no maturity date and was callable by the issuer after 30 years.
AT&T Perpetual Bond: In 2020, AT&T issued a perpetual bond worth $12.5 billion, which paid a fixed interest rate of 4.75%. The bond had no maturity date and was callable by the issuer after 5 years.
Bank of America Perpetual Bond: In 2014, Bank of America issued a perpetual bond worth $6 billion, which paid a fixed interest rate of 6%. The bond had no maturity date and was callable by the issuer after 5 years.
Walt Disney Perpetual Bond: In 2019, Walt Disney issued a perpetual bond worth $1.25 billion, which paid a fixed interest rate of 3.45%. The bond had no maturity date and was callable by the issuer after 10 years.
HSBC Perpetual Bond: In 2021, HSBC issued a perpetual bond worth $1.5 billion, which paid a fixed interest rate of 3.3%. The bond had no maturity date and was callable by the issuer after 5 years.
These are just a few examples of the many perpetual bonds that have been issued by companies and institutions around the world. Perpetual bonds can provide a unique financing option for issuers, while also offering investors a long-term investment opportunity with a steady stream of income. However, investors should carefully consider the risks associated with perpetual bonds before investing, as they may be considered riskier than traditional bonds.
