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Originally Posted by Bob Kontak
Off topic. I was an accounting major and auditor. In Caracas doing an audit of my company's outsourced accounting service. Assistant Controller, finance guy, walks me down to a market where I buy fake Mickey Mouse watches for my kids.
All the way he is talking about funding tranches of deals. I am thinking, WTF is a tranche? I just kept my mouth shut.  |
In some complicated bond issues, bonds can be divided into "tranches". If the company defaults and its assets are sold off to pay bondholders, the first tranche gets paid first, the second tranche gets paid second, and so on until the money runs out. Bondholders in the first tranche accept lower rates as they are first in line and in theory have lower risk. Bondholders in the next tranche are paid higher rates and so on.
It's all a bunch of BS in my opinion as when most companies get into trouble they declare bankruptcy, reorganize, and the bondholders get nothing or very little. In reality that debt is secured with management's willingness to repay it, which they will revoke at will.