Bonds as a financial instrument
A bond is a debt instrument used by companies and governments to raise money for defined purposes. In essence, the issuer of the bond, whether a corporation or a government, is borrowing money from investors to fund operations or specific projects. The lenders are paid interest on the bonds.
Generally, bonds are a subordinated debt and rank behind senior debt provided by banks but rank ahead of shareholders. Bonds may be secured or unsecured, rated by a credit rating agency, or not rated.
Bonds pay a coupon (interest rate) for a period (tenor) and the unit value of the bond is paid back to the investors at the end of the tenor of the bond. For listed bonds, the value of the bonds can vary during their life, but at the end of the period the investors holding the bonds are paid the initial value of the bond.
Globally, the bond market is significantly larger that the equity markets (stock exchange) in terms of funds raised by primary issuance.
Why and when would a company choose a Bond?
A company may choose to raise a funds by way of a bond issuance as part of its overall corporate financing strategy, for example when its traditional bankers will not lend them any more funds, and/or as an alternative to issuing new shares in an equity raising. In cases where a company wants to finance a new project, it can choose to raise funds by way of a project bond that can be structured to ‘ring fence’ the funding and risk through a special purpose vehicle issuing the bond, i.e. being the borrower. In such a case, the project’s assets may be suitable as security for the fund raising.
For bond issuance above US$100m, it is recommended that the issuer or the bond itself should have a credit rating from one of the top three credit rating agencies (Moody’s, S&P or Fitch). Credit ratings can be issued for the issuer of a corporate bond, or at the project bond level. BlueMount Capital also recommends listing of the bonds on secondary markets such as the Frankfurt Stock Exchange and Irish GEM.
BlueMount’s value proposition
BlueMount Capital provides corporate clients with a seamless bond issuance service, bringing together and managing all the service providers required to make the process smooth and efficient. Our clients are assigned a designated Account Manager, who liaises closely with them, and a designated Project Manager, who coordinates and manages the process.
We work closely with fellow professional firms, including structuring agents, issuance platform, trustees, custodians, listing agents, paying agents, lawyers and other professional service providers. We can also arrange green second opinion ratings where a green bond is being issued.
We arrange bonds for small issuers (US$20m to US$100m) and for larger issuance of US$100m to US$500m, the latter in international markets.
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