Eurobonds transactions

Under normal circumstances, the role of the trustee in a Eurobond issuance governed by English law, whether the role is cast as a note trustee, security trustee or both, is largely passive. In most Eurobond transactions, even highly structured transactions, the issuer is left to conduct its... 

The use of trusts and professional trustees within Eurobond issuance serves a number of legal and practical purposes. In the main, however, the essential service the trustee brings to the transaction is stability to the transaction and piece of mind for bondholders and issuers alike. Accordingly, the trustee is an invaluable element of a successful secured Eurobond transaction. Further to the role of trustee the Trust bank will offer a range of services to support the structured finance market place. 

Although the Eurobond market has changed hugely over time, in some ways it remains close to its roots. The way bonds are traded is one of these. Most transactions are still done over the telephone between market professionals. Salespeople take orders from institutional investors and relay them to the traders. 

The relative liquidity of the Eurobond market compared to the United States is a hotly debated question. The general impression is that the Eurobond market is less liquid than the US corporate sector. The average transaction size is greater in the United States, reflecting the market s larger size ( 1,679 billion versus 651 billion) and the concentrated structure of the investor base. Other obvious liquidity metrics, such as bid/offer spreads are hard to track consistently. What is true is that secondary market trading conventions have converged over time. 

So far in this section we have discussed the secondary market— transactions involving outstanding issues. Let s now turn to the primary sector, through which bond issues are originated and priced. The new issue sector provides the lifeblood of the Eurobond market by supplying new issues to replace those that have matured or been called. Also, bond issues become less liquid as time passes, so greater origination has a direct beneficial effect on the secondary market, as well. 

Credit derivative products are defined by reference to underlying reference entities, and reference obligations, which include corporate bonds, bank loans, sovereign debt, Brady bonds, and Eurobonds. Credit derivatives are now used increasingly in structured transactions. For example synthetic collateralised loan obligations (see Chapter 15) often use credit default swaps to transfer credit risk from the originator to the special purpose vehicle (SPV). Currently, the most common products are credit default products and total return swaps. 

The role of the trustee in a Eurobond issuance is to serve as a bridge between the issuer of the bonds and the bondholders throughout the life of the issuance. The scope of duties undertaken by a trustee in connection with any given issuance may vary from structure to structure, but the essence of the trustee s role is to hold and exercise as necessary, and as permitted by the trust documentation, the legal rights of each bondholder in the transaction. 

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