Equipment Trust Certificate
Categories: Muni Bonds, Banking
Well, it’s basically an asset-backed bond…i.e. a bond that is backed by the equipment or machinery that a company owns.
When you buy this sort of bond, the idea is that, in case the company can't pay back the bond...the equipment or machinery they own can be sold to pay for it—that way, the lender doesn’t lose money.
Probably.
Think of the equipment as collateral itself. Wanna buy a turbo-charged driving lawnmower that mows dozens of acres of land into a finely landscaped golf course...because you’re bored and like to cut grass?
You can buy it for six grand down and a $14k loan against that lawnmower, such that if you ever stop making payments, Caterpillar can repossess it and sell it on eBay. Although, if they do, they, uh...probably won’t be invited to play on your course.