A Loan Repayment Exchange Bond is a type of financial instrument issued by a borrower, often a corporation or government entity, to raise capital. These bonds are specifically structured to generate funds for repaying a loan or debt. Lenders who demand these bonds essentially provide a loan to the borrower in exchange for periodic interest payments and the eventual return of their principal investment upon maturity. The interest rate and maturity date of the bond are typically specified in the bond’s terms. This type of bond can be attractive to investors seeking regular income and a relatively lower risk compared to other investment options as it is the most recommended protection acceptable for international loan syndication.

It is a legal contract that ensures an agreement is carried out properly. When a bonding company sells a bond, they are promising to one party that the other party will fulfill their business terms. If the business is not executed fully or properly, then the insurer steps in to resolve the situation — typically with a refund up to a predetermined amount.

As mentioned, a Loan Repayment Exchange  bond involves three parties: