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What is a capital note?

Last Updated: 13 Jul 2016

A capital note is a short-term bond issued by a company to help pay company liabilities.

When you buy a capital note, you’re loaning money to a company for a fixed period of time in return for regular interest payments on a fixed interest rate (called a ‘coupon rate’).

Capital notes are generally unsecured and ranked ‘subordinated debt’ – which means if the company folds, they have a lower priority of being repaid than bonds, but have a higher priority than ordinary shares.

Before maturity (called the ‘election date’), investors are usually offered new terms for reinvestment, or the capital notes may convert into ordinary shares, usually at a small discount to the market price. You could also choose to be paid back in full, plus the interest.

Interested in online share trading? Find out more at ASB Securities.


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