What is a Bond Certificate?

A bond certificate is a legal document describing the indebtedness of a borrower and the terms under which that indebtedness will be paid back to the investor. The entity that issues a bond certificate is referred to as the issuer. This certificate is also intended to show the ownership by an investor of the debt owed by the issuer. The terms of the arrangement are stated on the certificate, including the following:

The name of the issuer
The amount to be paid back to the investor (known as the face amount)
The date of repayment (maturity date)
The issue date
The rate of interest to be paid on the borrowed funds (the coupon rate)
A unique certificate identification number

If the bond is intended to be sold at a discount, rather than paying any interest, then no interest rate will be noted on the certificate.

It is not necessary for the issuer to send bond certificates to investors when a bond is registered, since this means that the company is maintaining an internal record of who owns each bond. If bonds are designated as bearer bonds, then whoever has possession of the related bond certificates can demand principal and interest payments from the issuer on the dates stated on the certificates. Thus, it is necessary for investors to maintain tight control over their bearer bond certificates.

Example of a Bond Certificate

The following is a sample bond certificate for a hypothetical company called Rio Shipping, Inc. The text of the certificate contains these items:

Issuer name: Rio Shipping, Inc.
Face amount: $1,000
Coupon rate: 8%
Maturity date: December 31, 2035
Issue date: January 1, 2015
Unique certificate identification number: 037833100
Terms and conditions: Callable after eight years at 104% of the face value

In this example, the bond certificate pays $1,000 at its maturity date of December 31, 2035, as well as an 8% annual coupon payment (which is $80 per year). The call provision on the certificate allows Rio Shipping to redeem the bond after eight years at a call price of 104% of its face value, or $1,040.