Bonds issued by German or international companies or foreign subsidiaries of German companies are called “corporates” or “corporate bonds”. Industrial companies often issue bonds as an alternative to the customary borrowing of money from banks. As a rule corporate bonds are not subject to the provision of additional collateral as is the case, for instance, for mortgage bonds.
The creditworthiness of the individual company influences the interest rate to be paid on the issued bond. The rating, which is attached to an issuer or the bond issued, impacts the structure of the terms and conditions of the still to be issued bond – in particular the level of the yield. A bond with a first-class rating has a lower yield than bonds with a bad rating. Some bonds have a step-up or step-down coupon feature, i.e., based on the respective issue terms and conditions the nominal interest rate is increased or reduced on a change in the rating.