Financial Market Instruments
- Debt Securities Issues
- Securitization
Debt Securities Issues
Issuance of debt instruments (Debt Instruments) is a relatively simple source of financing for ongoing operations and/or investments, as an alternative or supplement to a bank loan. Issuers of Debt Instruments are usually blue chip companies generating low credit risk. Redemption of Debt Instruments may also be guaranteed by a high-rating company, e.g. parent.
Issuers of Debt Instruments acquire financing directly in capital markets in:
- a single issue of Debt Instruments; or
- multiple issues under Debt Instruments programs
Companies usually opt for a Debt Instruments program under which they place in the market subsequent issues with diverse amounts and maturities. Citi Handlowy acts as the Program Lead Manager, which prepares the structure of the program, documentation and information materials of the issuer, and also as the Dealer, which distributes the Debt Instruments in the primary market and organizes trade in the secondary market, the Payment Agent and the Depository.
Debt Instruments (commercial papers) with maturity up to 1 year are usually offered at discount while Debt Instruments (bonds) with maturity longer than 1 year are usually interest bearing bonds with a floating or fixed interest rate.
Bonds
Bonds and commercial papers are issued under the Bonds Act of 2015. They may have various structures and maturities to reflect the issuer’s demand for financing and the situation in the financial market.
BENEFITS
Securitization
Securitization is a funding method transforming relatively illiquid balance sheet exposures into tradable securities placed with investors, with the purpose of raising funds in the markets. Securitization means a transaction in which payments depend upon the performance of the securitized assets and the tranching of the credit risk determines the distribution of losses during the life of the transaction.
A typical example would see a pool of financial assets e.g. car finance loans, home or commercial mortgages, corporate loans, leases, or contractually pledged operating revenues, transferred to a Special Purpose Vehicle (SPV) that then issues debt backed solely by the assets transferred and payments derived from those assets.
The most important features of the product
- Conversion of usually not tradable exposures into tradable instruments
- Securitization can offer issuers higher credit ratings and lower borrowing costs
- Securitization allows for active credit action and transfer of decreased financing cost (achieved via ABS) to borrowers
ADVANTAGES
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