What is a Bondholder?
A bondholder is a person who owns a bond issued by a borrower, typically a company or a government. They are considered a creditor of a company.
How Does a Bondholder Make Money?
A bond represents a loan agreement between an issuer and an investor, and the terms of the bond obligate the issuer to repay the borrowed amount (the principal) by a specific date. The investor (the bondholder) usually earns a specific amount of interest on a semiannual basis.
Bondholders can buy and sell their bonds on the bond market.
Bondholder Vs Stockholder
Being a bondholder is much different that being a shareholder. For one thing, bondholders are lenders; shareholders are owners. Also, bondholders cannot vote and they are not entitled to dividends.
Do Bondholders Get Paid First?
Perhaps most important is the fact that bondholders rank senior to shareholders. This means that the bondholders are among the first in line to be repaid in the event the company goes under and is forced to sell off its assets.
Shareholders might receive some proceeds from the liquidation after this point, if there is anything left. This seniority provides an extra level of security for bondholders, and this is one reason corporate bonds are generally considered 'safer' investments than stock.
