The corporate bonds are a basically a contractual promise by the company in return for a loan, and the company promises to pay the loan back, with a pre-determined interest rate, by a certain date (called maturity date).
For instance, say someone loans the company 10 million dollars. The company then gives the entity loaning the money a bond, promising to pay back the 10 million, plus say 8.25% interest by July 17th, 2017. This would be considered an 8.25%, 5 year bond. Also, the bonds can be broken up in different sizes to make up the 10 million.
So, if everything is going good the company pays the 8.25 % interest annually, then no later than July 17th, 2017, pays back the 10 million. These bonds can be traded also. If I loaned them the money, I may not want to wait 5 years, or I may think they may not be able to pay back the money if the company becomes distressed, so I may be willing to take less than face value of the bond. So someone will buy it from me for an agreed price. Of course the buyer sees some value in the bond, or they wouldn't want it.
Bonds are backed by company assets, so when a company files bk, the bonds may drop by the holders being afraid they will not get their money back and selling for pennies on the dollar. As investors get more confident they will be paid, they are willing to pay more for the bond. That is what is happening here. They are still a long way from $100.00, that is what bonds are originally issued for, but they are increasing everyday. So, confidence is coming back in believing the bonds will be paid.
Hope this helps. Someone else may want to chime in also.
AI
