Is it true that private company bonds pay higher rates of interest than public company bonds?

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Good question!

Yes, private company bonds that are not rated often pay hundreds of basis points higher rates of return than rated public company debt.

There are numerous reasons for this. First, public companies find it much easier to attract financing and loans so they offer far lower rates of return since they have more bond purchasers willing to accept their meager rates of return.

The safest bonds are backed by hard assets such as real estate or packages of mortgage notes. The fact that a company has a good bond rating does not always give good protection. Some investors just look at the rating and think that will keep them safe.

For example, the American energy company, Enron, had a credit rating from Baa1 to Baa2, two levels above junk status. Standard & Poor's affirmed Enron's rating of BBB+, the equivalent of Moody's Baa1.

Don’t be that investor that just leaves everything to a rating agency. Those agencies are fine but you need to not pay that much attention to their ratings.

Far better is if the bonds are backed by hard assets. Too many investors are in love with public company debt and simply don’t take the time to explore private company debt that can often pay hundreds of basis points more.

Bond purchasers should not miss out on corporate bonds that are privately held and might pay hundreds of basis points higher rates. Alamo Mortgage Holdings, Ltd. corporate income bond pays hundreds of basis points higher rates than standard UK government bonds.

I hope that helps and good luck with your investing!

Benjamin Z Miller
www.benjaminzmiller.com