A bond in which a percentage of coupon payments is converted into capital (principal). In other words, the capital amount outstanding is increased over the bond’s life. Eventually, the issuer will repay the capitalized value of the bond at maturity date. In this sense, the capitalized percentages constitute a form of debt owed by the issuer. Actually, such percentages entitle bondholders to receive compound interest (interest on interest) in addition to the straightforward interest.