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Bonds can take many different forms, they can be of a simple form to attract smaller amounts of capital or they can be more complex with options at maturity for conversion into stock or other benefits and choices. However, the Bond Offering must be technically drafted and planned carefully to meet the strategic aims of the company.
The most important participant in a bond issue is the Issuer of the bonds. The Issuer is the one with the ultimate need, to raise money and capital for its projects and acquisitions or for refinancing. All of the other participants are there to assist in raising the money.
Bond issues can be made by companies where they need to raise funds over a medium to long term.
There are typically many parties to a bond issue, other than the Issuer and the buyer:
The Investment Banker, also referred to as the Bond Underwriter. They market the bonds to the public (or direct to closed parties) and agrees to buy the bonds from the Issuer and resell them to the Bond Purchasers. Often, the banker will assist in structuring the bond and preparation of the bond issue documents and may solicit bids from multiple underwriters. However, some smaller bond issues may be carried out on a closed-loop transaction where a bank or fund may agree to purchase the entire bond offering and therefore in such case the Issuer may choose to issue a single bond rather than multiple bonds.
The Attorney – They represent the Issuer in the financing and deliver legal opinion at the closing of the bond issue. The legal opinion will cover matters such as confirming the issuer is a valid entity, that the officers and executives of the Issuer hold valid appointment, that the meeting of shareholders calling for the bond offering was properly carried out and that no litigation is pending against the Issuer.
Bond Counsel – It is common practice for the Issuer to retain a bond counsel firm which specialises in bond issues and who will work with the Attorney with respect to legal issues and various aspects of the financing. Bond Counsel will co-operate with the Issuer and the Underwriter in structuring the transaction.
The Trustee – This is a bank chosen by the Issuer. Once the issue is closed and completed, debt service payments are made by the Issuer to the bondholders through a paying agent or Trustee. If the bond issue ever goes into default, the Trustee usually represents the bondholders in remedial proceedings against the Issuer.
Credit Enhancement – This is typically a bank or insurer. It will often make commercial sense for the Issuer to pay a third party to guarantee the bond issue. An insurance company may issue an insurance policy (or financial guarantee) guaranteeing payment of debt service on the bonds, or a bank may issue a Guarantee to underpin the bonds.
Undertaking a bond issue is a complex financial procedure that calls for expert knowledge in co-ordinating all parties to best serve the Issuer. QIBD can assist its clients deliver all requirements to the Issuer and through our expert partners, co-ordinate the bond issue. Taking your offering to the market place and ensuring that your bond issue succeeds to raise your company its financial requirement.
To discuss the intricacies of undertaking a bond issue and to discuss the benefits that it may hold for your business, please contact us in confidence where our expert team will be pleased to advise and offer the necessary consultations and introductions.
In the process of a Bond Issue, it is often recommended by Bond Counsel to have a Credit Enhancement to the Bond offering. This has several favourable benefits for the Issuer:
Credit Enhancement to a Bond Issue may be the final piece of the complex jigsaw that is the bond issue process and may be the culprit of the highest portion of cost.
Credit Enhancement can take many different forms. Typically, it may be an insurance policy or a type of financial guarantee that is underwritten by an insurer who specialises in financial risk. It may often be a bank who may issue a Letter of Credit or other form of Demand Guarantee to underpin the Bond. It may also be the assignment of other forms of assets, creating an asset-backed Bond with the Trustee being the holder of such assets.
The structure of the Credit Enhancement could ultimately be the deciding factor of whether a potential investor accepts to purchase the bonds or not. Ultimately, how safe is the end credit? Of course, if the Bond is backed by a rated and known insurer or bank, then the investment risk in purchasing the bonds is smaller than having no credit enhancement at all and relying on the strength of the Issuer alone.
It is of extreme importance to find the correct Credit Enhancement for the Bond and ensure that it is suited to the structure of the Bond. Above all, there are two factors that will influence the method utilised.
Firstly, the costs: Insurance Guarantee’s or Financial Guarantees may be more expensive for young companies as the Issuer compared to perhaps bank undertakings.
Secondly, the rating required for the Bond: To achieve an investment grade rating and become attractive to purchasers, it is important to ensure that the Credit Enhancement carrier is of suitable size, ranking and stature. Of course, the more complex the enhancement, the costlier it could be.
If you are contemplating a Bond Issue, or indeed any other type of debt obligation issue and are seeking the correct Credit Enhancement partner to underpin the obligations and of course to minimise enhancement costs, please contact QIBD today where our experienced partners will be pleased to assist you and provide the best options for necessary facilities.
Assisting our customers with introductions to advising and financing various bond issues, QIBD have access to many different investment opportunities that may not be accessible to the public. Through our partnerships involved with closed-loop investment strategies and Private Label Funds, QIBD are ideally placed to make introductions for potential sophisticated investors direct to investment bankers soliciting bids for new issue bonds and other investment opportunities.
Working with our Swiss Bank partners and combined with the ability to structure complex financial portfolios and leverage purchase schemes, we can create bespoke asset vehicles and strategies to maximise the investment power and returns for our Clients. Working with smaller sophisticated investment groups through vehicles such as white label funds, we can design specific target purchases in new issue bond markets and emerging markets as well as laying down access to medium term note trades and securitisations of coupon notes.
To receive further information on these types of investment services, please feel free to contact us where our investment partners will be pleased to discuss your requirements and offer any advice necessary. We look forward to meeting with all our potential investors and to discussing matters in strictest confidence here in Switzerland through our personal invitation.
* This should not be considered as a solicitation of investment.
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