Brady Bonds - Types

Types

There were two main types of Brady bonds:

  • Par bonds were issued to the same value as the original loan, but the coupon on the bonds is below market rate, principal and interest payments are usually guaranteed.
  • Discount bonds were issued at a discount to the original value of the loan, but the coupon is at market rate, principal and interest payments are usually guaranteed.

Other, less common, types include front-loaded interest-reduction bonds (FLIRB), new-money bonds, debt-conversion bonds (DCB), and past-due interest bonds (PDI). Brady Bond negotiations generally involved some form of "haircut" – meaning that the value of the bonds resulting from the restructurings was less than the face value of the claims before the restructurings.

Guarantees attached to Brady bonds included collateral to guarantee the principal, rolling interest guarantees, and value recovery rights. Not all Brady bonds would necessarily have all of these forms of guarantee and the specifics would vary from issuance to issuance.

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