CREDIT TITLES: CLASSIFICATION, CHARACTERISTICS AND EXAMPLES - ARTE - 2025

The credits are documents used to prove the obligation normally contain reflected in paper format. Without the document of the title of credit the right cannot be claimed, so that is the origin of its force. The credit titles are those that provide the holder with active legitimacy.

There are registered and bearer credit titles. As examples of credit titles are checks, promissory notes and bills of exchange, which also have the character of commercial papers. This character is conferred because, in addition to the characteristics of credit titles, they add that of being formal, complete and abstract.

Each title of credit has in itself the autonomy that the credit that originates it provides, and this is transmitted to each of the successive holders progressively in its own and independent way. Likewise, they are literal documents and your claim is limited to what is exactly stated in the title.

Classification

Credit titles can be classified into:

Nominative and bearer

This depends on whether the holder of the credit with a name and surname (nominative) is specifically determined or if it is established that the holder of the credit is the holder of the same; that is, the one who has it in their power at the time of making it effective.

Individual and serial

It depends on whether there is a single title for the entire credit title or if there are several serial titles, consecutive, for a part of the obligation that is the object of the credit title. A single title is individual and several consecutive titles are serial.

Abstract and causal

It has to do with whether the reason for the obligation is established in the title or not. If the cause is not indicated, they are abstract; if indicated, they are causal.

Nominated and Unnamed

It is linked to whether they are regulated in the applicable legislation. The nominees are, and they are bonds, promissory notes, bills of exchange, checks, pledge bonds, housing certificate and certificate of participation.

Normally the unnamed do not have specific regulations and are not used much in Mexican law.

Credit, participation and representative

This depends on the object of the title: the loans grant the power to collect money, the representatives grant the power to dispose of a pledge or property right and the participation rights add to the money rights of participation within a life in society. The subject of the title determines its classification.

Main and accessories

They are main or accessory depending on whether they exist independently or not. The main credit titles are those that exist without depending on anyone.

However, accessory credits are linked to another that is the main one and without that they cannot exist.

characteristics

Virtually all credit instruments have several key characteristics. We will describe some of these below:

- The titles are made through a transferable instrument.

- They have interest or are issued at a discount on their face value.

- On a specific date or in installments, they must be repaid by the issuer, although some credit instruments are issued without a fixed repayment date.

- They can be listed on the stock exchange or issued to a group of pre-selected investors on a private award basis.

- They are generally traded on the over-the-counter market; i.e. directly between two parties rather than through a stock exchange (even if they are listed on a stock exchange)

- May be unsecured and rated pari passu (all things being equal) with the issuer's other unsecured debt, or secured in specific assets.

- They can be full recourse, which means that the holders of the credits have a right over the general assets of the issuer. They can also be limited recourse, meaning that the claims of the credit holders are limited to the assets specified by the issuer.

Example

Mr. Martinez is looking for investment options for his savings that offer regular payments and exceed the interest you would get by leaving your money in a regular savings account. Credit titles are one option you can use to grow your money; you have several options to do so.

Debt securities make it easier for an institution to borrow money from investors like Mr. Martinez and repay the loan with interest. When institutions or corporations, governments or banks need to raise money to conduct business, they have two main means of doing so.

First, they can sell company capital in the form of regular shares, but that requires giving up ownership of the company. Another option is to create credit titles.

Bonds

(Bonds are a type of credit bond.)

Mr. Martinez knows something about bonds, mainly because he received some savings bonds from his grandparents when he was younger. Bonds are credit instruments that have different forms and are distinguished mainly by the type of institution that issues them.

The bonuses work as follows. Institutions sell bonds to investors and promise to make periodic interest payments until the value of the bond is fully repaid on a specified future date.

Bonds issued by the federal government are generally known as government bonds, while those issued by state and local governments are called municipal bonds. Corporations issue corporate bonds in order to raise money to finance their operations.

Often times, government bonds act as a benchmark for interest rates on debt securities in general. Government bonds are backed by the state, which makes the risk of default very low, as the government can always raise taxes or cut expenses to make payments.

Therefore, a corporate bond may have higher interest, since there is more risk involved. By purchasing a corporate bond, Mr. Martinez is making an investment that is more risky than a savings account or even a state bond. Logically, it has a higher performance.

References

1. Study. Debt Securities: Definition and Examples. Study.com
2. Business Dictionary. Debt Securities. Businesdictionary.com
3. Lexis PSL. Types of debt securities. Lexisnexis.com
4. Morning Star Investing Glossary. Debt Securities. Morningstar.com
5. Investopedia. Debt Securities. Investopedia.com