Certificate of Accrual on Treasury Security (CATS)

What Is Certificate of Accrual on Treasury Security (CATS)

Certificates of Accrual on Treasury Securities (CATS) were a type of bond created by the bank Salomon Brothers. Issued by private banks from 1982-1986, these bonds were backed by the U.S. Treasury through the creation of special purpose entities (SPV/SPEs).

CATS were one of the groups of securities being issued at the time with cat abbreviations. Other "cats" included Treasury Income Growth Receipts (TIGRs) and Lehman Investment Opportunity Notes (LIONs). TIGRs was the first of the family and were the creation of Merrill Lynch. Salomon Brothers took cues from them by making their brand of zero-coupon bonds.

Grasping Certificate of Accrual on Treasury Security (CATS)

CATS were sold at critical discounts from their face value however could be reclaimed for their full face value when they matured. Dissimilar to different types of bonds, CATS paid no interest through coupons before the bond's maturity. The difference between the amount the investor paid for the bond and its genuine face value was intended to address the interest that would have accrued a long time before the bond's maturity.

Like different securities backed by the U.S. government, CATS were viewed as secure investments which accompanied no risk. They were guaranteed to reclaim at their full face value at maturity. Nonetheless, these bonds became obsolete when the U.S. government started straightforwardly giving zero-coupon bonds through the Separate Trading of Registered Interest and Principal of Securities (STRIPS) program. They are at this point not available for purchase, besides through the secondary bond market.

Redemption of CATS

In 1991, Salomon Brothers, the primary giving bank for CATS, was immersed in a scandal due to fraudulent activities. This scandal brought about Salomon Brothers' board naming Warren Buffett to the job of chair and chief executive to reestablish integrity and stability to the bank. Ultimately, the bank merged with Travelers Group in 1997, and later with Citibank, framing the present Citigroup.

Due to conglomeration and bank mergers after some time, many individuals holding CATS bonds presently struggle with sorting out some way to reclaim them. The quickest way is to perceive the bond's Committee on Uniform Securities Identification Procedures (CUSIP) number. This number is a unique code that distinguishes the bond's issuer. When the bondholder has recognized the issuer, they ought to have the option to decide the entity at present responsible for the repayment of the bond.