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Late Payment of Interest on Bonds

Investors sometimes complain to the SEC about late payments of interest owed to them on their bonds. But the SEC does not generally regulate this issue. Instead, the process for paying bondholders ordinarily involves banking transactions that are subject to the supervision of state and federal banking authorities.

Here’s how the process should work: the bond issuer pays interest to the trustee named in the bond agreement. The trustee then transfers the money to the paying agent, who in turn makes interest payments to bondholders. Usually, the trustee and paying agent are the same banking institution.

If you’re experiencing difficulty receiving your interest, here’s what you can do:

• Contact the trustee and ask whether the issuer has, in fact, made the payments due and what steps the trustee is taking to protect bondholders.
• Contact the paying agent for an explanation if the paying agent is a separate from the trustee and both the issuer and trustee have made their payments on time. If you are not satisfied with its explanation, contact the state banking regulator of the state where the paying agent is chartered and operates or report the delay to the federal bank regulatory agency that supervises the paying agent bank.
• Contact the issuer to determine whether the trustee/paying agent that appears on the face of the bond has changed because of a merger or other circumstances.

If you hold a bond in book-entry form and are having payment problems, you may need to contact the securities firm, bank, or other participant that maintains your ownership position.

Source: Securities and Exchange Commission

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