Fixed Income I
Reading 43. Fixed-Income Markets: Issuance, Trading, and Funding
Learning Outcome Statements
g. describe types of debt issued by corporations;
CFA Curriculum, 2020, Volume 5
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Subject 4. Corporate Debt
Bank Loans and Syndicated Loans
A bilateral loan is a loan from a single lender to a single borrower. A syndicated loan is a loan from a group of lenders to a single borrower. Most loans are floating-rate loans.
Commercial paper describes a short-term, unsecured promissory note that is used by companies as a source of short-term and bridge financing.
- Although defaults are rare, investors in this market are still exposed to credit risk.
- Many issuers roll over their paper on a regular basis. Issuers are required to secure backup lines of credit to minimize rollover risk.
- Due to higher credit risk and less liquidity, the yield from commercial paper is higher than that of short-term sovereign bonds.
- A U.S. commercial paper (USCP) is typically issued on a discount basis, while a Eurocommercial paper (ECP) is typically issued on an interest-bearing basis.
Corporate Notes and Bonds
Corporate bonds and notes take different forms, depending on the maturities, coupon payment and principal repayment structures, collateral backing and contingency provisions. These concepts are covered in the previous reading.
Medium-term notes (MTN) are corporate debt obligations offered to investors continually over a period of time by an agent of the issuer. The maturities vary from nine months to 30 years. Note that the term "medium-term" is not related to the term to maturity of the securities.