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((Short description|Types of securities))
((Unreferenced|date=June 2019|bot=noref (GreenC bot)))
'''Capital notes''' are several types of [[security (finance)|securities]]. "Capital note" has a number of meanings, as it can be either an [[equity (finance)|equity]] security, a [[liability (financial accounting)|debt]] security or a form of security used in [[structured finance]]. In all cases, the use of the term "capital" is to denote that the security is relatively [[subordination (finance)|junior]] in the issuing corporation's order of priorities in claims for its assets.

==Convertibles==
'''Capital notes''' are a form of [[convertible security]] exercisable into [[shares]]. They are [[equity (finance)|equity]] vehicles. Capital notes are similar to [[warrant (finance)|warrant]]s, except that they often do not have an expiration date or an exercise price (hence, the entire consideration the [[company]] expects to receive, for its future [[share allocation|issue]] of shares, is paid when the capital note is issued). Capital notes may be issued in connection with a [[debt restructuring#Debt-for-equity swap|debt-for-equity swap restructuring]]: instead of promptly issuing the debt-replacing shares, the company issues convertible securities, in order to postpone the event of [[share dilution]].

==Bonds==
Alternately, a '''capital note''' is a [[bond (finance)|bond]] with a very long [[maturity (finance)|maturity]] horizon, reaching several decades (sometimes as much as 50 or 100 years). Unlike equity securities, these capital notes ''do'' mature at some point; therefore, they form part of the company's [[liability (financial accounting)|liabilities]] and not part of [[equity (finance)|equity]]. However, since their maturity is so far in the future, they are treated as equity for practical purposes; the company keeps the money raised through them inside its balance sheet for a very long time. [[Bank]]s and other financial institutions issue these bonds to satisfy regulatory demands regarding [[capital requirement]]s, specifically under the [[Basel Accords]]. In the Basel "tiers" system, capital notes are treated as close to equity, as both reinforce the bank's "capital". Additionally, bank capital notes are usually not [[secured debt|collateralized]] and are contractually [[subordinated debt|subordinated]], forming a junior class of debt. Similar terms might be found in redeemable [[preferred shares]].

Contrary to the warrant-like capital notes described above, these capital notes are usually not convertible, so they represent no current or future stake in the corporation's equity ([[share capital]]).

==Structured finance==
In [[structured finance]], the '''capital note''' is the most junior security issued by a [[structured investment vehicle]]. It is comparable to the equity [[tranche]] of a [[collateralized debt obligation|CDO]]. Investors who buy the capital notes are the first in line to bear risk if the cash flows from the SIV's assets are insufficient to cover promised payments to all investors. See [[securitization transaction]] for more details on how the process of slicing up risk (or "tranching") works.

[[Category:Credit]]
[[Category:Equity securities]]
[[Category:Interest-bearing instruments]]
[[Category:Embedded options]]
[[Category:Management cybernetics]]

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