Issuers types

Like the Eurodollar market, the Eurosterling sector is quite diversified by issuer type (Exhibit 6.16). Issuance of top quality paper with long maturities has been especially large, mainly because issuers can achieve very tight funding in LIBOR terms, given the relatively wide 30-year sterling swap rate. 

The reverse convertible bonds have increased popularity in Europe and United States. This type of instrument gives to the issuer (not the bondholder) at maturity the right to exchange the bond into shares or to redeem it at par value plus accrued interests. In the first case, the bond is exchanged if the share price is less than conversion price, or if the conversion value is less than par value. Conversely, the issuer can redeem the bond. They typically have a domestic stock as underlying security, but they can also include foreign shares and indexes. 

Issuer Name Sector Ticker Issue Date Date o/ /o (Mid) Type Issue after Issue... 

Step-up callable notes are a particular type of structured fixed income products. These bonds offer a coupon payment that increase during the bond s life. Moreover, they include a call option, that as we discussed earlier, the issuer has the right to redeem the bond early. The question, whether a callable step-up note will be called or not always depends on the evolution of interests rates. Therefore, the inclusion of these two characteristics makes the bond attractive to investors with higher performance than a conventional bond. The added variable coupon element acts for an investor as cushion compared to a conventional callable bond. In fact, the increasing coupon payment increases the value of a callable bond. However, if interest rates go down and coupon payments increase, the incentive of the issuer to redeem the bond early is greater than a simple callable. 

The different types of bonds in the European market reflect the different types of issuers and their respective requirements. Some bonds are safer investments than others. The advantage of bonds to an investor is that they represent a fixed source of current income, with an assurance of repayment of the loan on maturity. Bonds issued by developed country governments are deemed to be guaranteed investments in that the final repayment is virtually certain. For a corporate bond, in the event of default of the issuing entity, bondholders rank above shareholders for compensation payments. There is lower risk associated with bonds compared to shares as an investment, and therefore almost invariably a lower return in the long term. 

Some bonds include a provision in their offer particulars that gives either the bondholder and/or the issuer an option to enforce early redemption of the bond. The most common type of option embedded in a bond is a call feature. A call provision grants the issuer the right to redeem all or part of the debt before the specified maturity date. An issuing company may wish to include such a feature as it allows it to replace an old bond issue with a lower coupon rate issue if interest rates in the market have declined. As a call feature allows the issuer to change the maturity date of a bond it is considered harmful to the bondholder s interests therefore the market price of the bond at any time will reflect this. A call option is included in all asset-backed securities based on mortgages, for obvious reasons. 

There are two main types of credit risk that a bond portfolio or position is exposed to. They are credit default risk and credit spread risk. Credit default risk is defined as the risk that the issuer will be unable to make timely payments of interest and principal. Typically, investors rely on the ratings agencies—Fitch Ratings, Moody s Investors Service, Inc., and Standard 8c Poor s Corporation—who publish their opinions in the form of ratings. 

For securities that fall into the first category, a key factor determining whether the owner of the option (either the issuer of the security or the investor) will exercise the option to alter the security s cash flows is the level of interest rates in the future relative to the security s coupon rate. In order to estimate the cash flows for these types of securities, we must determine how the size and timing of their expected cash flows will change in the future. For example, when estimating the future cash flows of a callable bond, we must account for the fact that when interest... 

The two most common types of embedded options are call (or prepay) options and put options. As interest rates in the market decline, the issuer may call or prepay the debt obligation prior to the scheduled principal repayment date. The other type of option is a put option. This option gives the investor the right to require the issuer to purchase the bond at a specified price. Below we will examine the price/yield relationship for bonds with both types of embedded options (calls and puts) and implications for price volatility. 

Last, but not least, one sector that is increasingly gaining importance, not only in terms of amounts issued but also in investors interest, is the inflation-linked bond market. Up to this moment the French Tre-sor has been the main issuer of these bonds, although some other treasuries have already issued small amounts in these type of bonds (Greece) or have expressed their desire to do it in the future (Italy). 

For market practitioners, in the pre-EMU, era the term Eurobond meant a type of security rather than the currency of the obligation. Eurobonds could be sold in any convertible currency, by issuers domiciled in any country. A Eurobond had—and still has—the following features ... 

Most FRNs have been issued by sovereign-type entities and financial institutions. Industrial and utility activity has been relatively low, although it picked up somewhat in early 2002, as the extremely unstable market conditions made it difficult for issuers to sell fixed-rate securities (see Exhibit 6.18). 

The type of issuer is naturally a major influence and as an example of the impact this can have, covered bonds issued by the Landesbanken, which profit from state guarantees and from the fact that they are eligible assets for the covered bonds of the private mortgage banks, trade on average 6 to 8 basis points more expensive than the other issues. 

All in all, the secured nature of this type of product strongly reduces the loss potential in a default scenario and to date, since their inception back in 1869, no Cedulas Hipotecarias has ever defaulted. In Moody s opinion these factors justify a rating of two notches above the senior unsecured debt rating for the issuer. 

When the issuer has the option to call the notes on a specified date, the interest margin on the notes will usually increase. This gives the originator an additional economic incentive to arrange for the notes to be called. However, in certain jurisdictions this type of call may prevent the off-balance sheet treatment of the securitised loans, so this step and call feature is not found in all transactions. 

A master trust allows an RMBS issuer to establish a sizeable securitisation programme, even with many series of notes secured through multiple SPVs, at a dramatically lower cost than through traditional separate securitisations. The ability to issue notes with a variety of maturities and redemption profiles allows the issuer to expand the available investor base and to tap into specific demand in the market. However, this process does rely on economies of scale and so is probably not the ideal form of securitisation for a smaller lender. Also, the requirement to maintain a minimum seller s share in the trust would make this type of structure less suitable than others for lenders wishing to securitise 100% of their balance sheet. 

A permit system requires a special document (permit), which acts like a checklist, to be filled out. Usually, the work involves some type of hazard. Personnel involved in the hazardous work must fill out a permit and the permit must be inspected and verified as complete before work can begin. The function of the permit system is to force personnel involved in a hazardous task to take the time to review all the steps, the personal protection equipment (PPE) required, the type of hazard(s) expected, and equipment required to perform the task safely. The permit system also temporarily transfers custody of a piece of equipment. As an example, a unit has a failed pump that must be repaired. This will require the pump to be removed from the process unit and taken to maintenance repair shop for repairs. The permit system places responsibilities on the issuer of the permit (operators) and the recipient of the permit (maintenance personnel). In essence, a permit system is an extra step in the direction of safety and accident prevention. Some of the more common permits are ... 

The flexibility of securitization is a key advantage for both issuers and investors. Financial-engineering techniques employed by investment banks today enable bonds to be created from any type of cash flow. The most typical such flows are those generated by high-volume loans such as residential mortgages and car and credit card loans, which are recorded as assets on bank or financial-house balance sheets. In a securitization, the loan assets are packaged together, and their interest payments are used to service the new bond issue. 

Conduits are commercial lending entities set up solely to generate collateral to be used in securitization. They are required by more-frequent issuers. The major investment banks have all established conduit arms. Conduits are responsible for originating collateral that meets the investor s requirements on loan type (whether amortizing or balloon, and so on), loan term, geographic spread of the properties, and the time that the loans were struck. Generally, pool diversification in terms of size and location is desirable, since this reduces the default risk for the investor. After it has generated the collateral, the conduit structures the deal with terms similar to those of CMOs but with the additional features described in this section. 

CDOs of both types are also categorized by the motivation behind their creation. The two main categories are issuer- or balance sheet-dnven transactions and investor-driven or market value arbitrage transactions. 

ISSUER SPREhD UhTUPITY iEP TTRir FRtu TYPE CNTPi /lLIRR... 

Some convertibles are callable by the issuer, under prespecified conditions. These are known as convertible calk and remove one of the advantages of the straight convertible—that conversion is at the discretion of the bondholder—because by calling a bond the issuer is able to force conversion, on terms potentially unfavorable to the investor. There are two types of call option. Hardcall is nonconditional while soficall is conditional. If a bond is hardcall protected for any time after issue, then the issuer may not early-redeem the bond. During softcall protection, early redemption is possible under certain conditions, normally that the underlying share price must trade above a certain level for a specific period. This level is usually around 130 percent of the conversion price. 

The basic premise behind a convertible bond is that it enables the holder to obtain exposure to a company s equity. It follows, then, that a buyer should have a positive view of the company s future prospects. On issue, a convertible bond s price behavior will be a function of the underlying equity price, the credit quality of the issuer, and the prevailing interest rate. The price action of the equity determines how an investor will view the convertible. Depending on this price action, convertible bond trade patterns generally follow one of three types. They may move from one type to another during their life, as the fortunes of the underlying equity fluctuate. A discussion of these patterns follows. 

The constraints of networked and wired media must be taken into account. For example, the information transmission time on the CAN is not guaranteed, it is necessary to provide margins a frame issued every 10 milliseconds typically transmits information with a possible lag of 20 milliseconds, with regards to the provision of information to the CAN protocol manager of the Issuer, and the impact of a data frame issued every 10 milliseconds is important for the load of a vehicle network of the CAN (500 Kb/s) type. 

Issuer - cedant/sponsor EQ region Size in US m Trigger type Year... 

GOs and revs are the two main muni issuers. They issue a number of different types of munis that include anticipation notes, alternative minimum tax (AMT) bonds, insured bonds, zero-coupon or capital appreciation bonds, and callable and prerefunded bonds. The web site or broker from which you are buying the bonds can describe each in more detail. 

Bond funds offer monthly income, portfolio diversification, and professional money management. A bond fund is usually made up of individual bonds similar in maturity, quality, and type of issuer, as such, buying into a bond fund is a good way for the small investor to tap into a specific sector or objective without committing a large exposure. 

---