Legal Definitions - coupon note

A coupon note is a type of debt instrument, similar to a bond or promissory note, that includes physical coupons attached to the main document. Each coupon represents a specific interest payment due on a particular date. To receive an interest payment, the holder of the note would detach the corresponding coupon and present it to the issuer or a designated agent for payment. This method was common before the widespread adoption of electronic record-keeping for securities.

Here are some examples to illustrate the concept of a coupon note:

• Historical Government Bond: Imagine a person in the 1950s who purchased a U.S. Treasury bond. This bond was a physical certificate with a series of small, perforated slips attached along one edge. Every six months, the bondholder would carefully cut off one of these slips, which specified the interest amount and the payment date, and mail it to the Treasury Department to receive their interest payment.

  This illustrates a coupon note because the bondholder received their periodic interest by physically detaching and submitting a "coupon" from the main bond document.

• Pre-Electronic Corporate Debt: In the 1970s, a large manufacturing company might have issued long-term debt to finance the construction of a new factory. Investors who bought these notes received paper certificates, each with a strip of coupons. Each coupon specified a date and an amount, representing a semi-annual interest payment. Investors would present these coupons to the company's designated bank to collect their interest.

  This example demonstrates a coupon note where a private company's debt obligation was accompanied by physical coupons that had to be presented to claim periodic interest payments.

• Older Municipal Bond Issuance: Consider a city in the early 1980s that issued municipal bonds to fund various infrastructure projects, such as building new roads or schools. These bonds were issued in physical form, and each bond certificate had a sheet of coupons attached. On the specified interest payment date, bondholders would clip a coupon and deposit it with their bank, which would then process the interest payment from the city.

  This shows a coupon note where a local government's debt instrument included detachable coupons, which served as the mechanism for bondholders to collect their regular interest earnings.