What happens when a bond issuer pays late

Late Payment
Should such a situation arise, bond issuers (the businesses) are encouraged to notify bondholders in a timely manner i.e., before the payment due date. 

This involves the following:

• Provide an update in business situation leading to delay in bond repayment

• Provide a proposed date for payment to bondholders 

Bondholders will receive additional interest according to the number of days paid late (calculated on a daily interest basis). 

Troubled Debt Restructuring
In the event there are extenuating circumstances where all future repayments to bondholders are affected, then a restructuring of the bond will be required. 

This involves the following:

1. A bondholders meeting will be called where the bond issuer and bondholders will attend

2. The bond issuer will propose a bond restructuring plan i.e., an updated schedule of payments to bondholders 

3. A resolution will need to be obtained at the bondholders meeting in order for the bond restructuring to take place

For restructured bonds, the interest rate will be calculated with an additional 1.5% rate per year during the restructuring process.

Calculation of interest (Troubled debt restructured bonds)
Interest = outstanding balance × (interest rate per year + 1.5%) / 365 × number of days since the latest payment date to the present payment date."

Legal Action
In the event where the business is still unable to fulfill its payment obligations, bondholders may decide to proceed with legal action to recover the outstanding balance due to bondholders. This involves the following: 

1. A bondholders meeting will be called and bondholders will attend

2. A resolution will need to be obtained at the bondholders meeting in order to proceed with legal action (this includes the appointment of a representative to act on behalf of bondholders)

3. The cost of legal action will be borne by the bondholders