Lecture 4 - Debt Capital Markets

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1、Lecture4:DebtCapitalMarketsRoseKay1INTRODUCTIONTOBOND2BondDefinition
Abondrepresentsacontractualobligationbetweenanissuerandinvestor.
Haveastatedinterestrateandfixedduedateswheninterestandprincipalmustbepaid3AKeyDistinction–BondvsLoanBondLoanMaturityLongerS

2、horterCouponUsuallyfixedUsuallyfloatingRatingsRatingpreferableNotrequiredCovenantsFewercovenantsMorecovenantsInvestorbaseBroadinvestorbaseBanksPrepaymentVeryrestricted(canincludeCanbepreparedwithoutissuercall)penaltyDrawdownandLittleflexibilityFlexiblerepay

3、mentConfidentialityNotconfidentialYesSpeedDocumentationcouldbeFairlyquickonerous4FeaturesofaBond•Principal,notionalamount•Issueprice•Redemptionprice•Maturitydate•Coupon(fixed,floatingorzero-coupon)•Covenants•Ratings•IssuerCall•InvestorPut5RatingsMoody’sS&PC

4、apacitytorepayAaaAAAPrimegradeAa1toAa3AA+-AA-HighgradeA1toA3A+toA-UppermediumgradeBaa1toBaa3BBB+toBBB-MediumgradeBa1-Ba3BB+toBB-SpeculativegradeB1-B3B+toB-DistinctlyspeculativegradeCaa1-CCCC+toCCC-HighlyspeculativegradeDDebtindefault6TYPESOFBONDS7TypesofBon

5、dsByissuers•Corporate•GovernmentBycreditratings•InvestmentGrade•HighYield8TypesofBonds(cont’d)Byranking•Senior•SubordinatedBysecuritypackage•Secured•Unsecured9TypesofBondsbyMarketofIssuance•Foreignbonds•Eurobond•Globalbonds•Domesticbonds10ForeignBonds•Yanke

6、e•Samurai•Bulldog•Navigator•Panda•Formosa•Arirang•Maple11DimSumBonds•DimsumbondsarebondsissuedoutsideofChinabutdenominatedinRMB•RMB:China’scurrency•CNY:SpotmarketfordeliverableRMBinChina•CNH:SpotmarketfordeliverableRMBinHongKong12BONDTRADING13BondTrading•Se

7、condarymarket•Benchmarks&CreditSpreads–GovernmentCurve–SwapCurve–CreditCurve•Yieldtomaturity,currentyield14RisksFactors•MarketrisksandInterestraterisks–Inverserelationshipbetweenpriceandyield•Reinvestmentrisks•Creditrisks•Prepaymentrisks•Liquidityrisks•Even

8、trisks•Exchangeraterisks•Inflationrisks•Sovereignrisks15PROCESSOFBONDISSUANCE16KeyExecutionProcessKickoffDuediligenceRatingsDocumentationPrintingofredherringRoadshowPricingClosingKeyDocumentsTrusteeLaw