11/01/2015 Pr. Didier Folus 1 3. Corporate bonds and agency bonds • A corporation can go bankrupt • Bondholders have a prior legal claim (on corp. assets) over stockholders : Assets Liabilities Asset 1 Asset 2 Asset 3 Asset 4 … Covered bonds Unsecured bonds Subordinated bonds Preferred stocks Common stocks Strong claim on assets Weak claim on assets assets are pledged by the borrower to secure repayment to bondholders bondholders have the claim of general creditors on all assets of the issuer not pledged to secure other debt
19
Embed
3. Corporate bonds and agency bondsp8.storage.canalblog.com/85/99/366275/101475943.pdf · 3. Corporate bonds and agency bonds • A corporation can go bankrupt • Bondholders have
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
11/01/2015 Pr. Didier Folus 1
3. Corporate bonds and agency bonds
• A corporation can go bankrupt
• Bondholders have a prior legal claim (on corp. assets)
over stockholders :
Assets Liabilities
Asset 1
Asset 2
Asset 3
Asset 4
…
Covered bonds
Unsecured bonds
Subordinated bonds
Preferred stocks
Common stocks
Strong claim
on assets
Weak claim
on assets
assets are pledged
by the borrower
to secure repayment
to bondholders
bondholders have the claim of
general creditors
on all assets of the issuer
not pledged to secure other debt
3.1. Common bonds & notes
3.1.1. Fixed rate : Carrefour 4.00 % April 2020
Notes features Issue final terms Status & Provisions
Nominal amount 1,000,000 1 000 EUR Unsubordinated
Issue date April 9, 2010
Maturity date April 9, 2020
Redemption price par value Not callable
Coupon per annum 4.00 %
Rights date April 9, 2010
Credit rating S&P : A
Distribution syndicated
Offered issue price 99.806 %
Listing & trading Bourse de Luxembourg ISIN : XS0499243300
11/01/2015 Pr. Didier Folus 2
11/01/2015 Pr. Didier Folus 3
3.1.2. Issuance by syndication
• Bank syndicate : book building, discovering yield & price
• ract is the investor expected return to maturity
%024.4
1
00.104...
1
00.4
1
00.4806.99
102
act
actactact
rrrr
Source : www.financefi.fr
Feb 27, 2014
11/01/2015 Pr. Didier Folus 4
3.1.3. Corporate bond credit spread
• Yield spread on February 27, 2014 :
– OAT 3.5 % Apr 2020…….. 1.242 %
– Carrefour 4.0 % Apr 2020... 1.865 %
• Credit spread
evolution :
– economic sector
– investors risk aversion
– uncertainty level
Euro Corporate
Bond spreads of
non-financial
corporations(basis points,
monthly averages)
BBB from March 15, 2012
11/01/2015 Pr. Didier Folus 5
Long term US Corporate bond yields
of non-financial corporations(basis points, monthly averages)
• Stock redeemable bond : redemption in issuer’s stocks. (lower yield-to-maturity than non-convertible bonds)
• Convertible bonds : holder can convert the bond into shares of the issuer’s common stock under defined terms. (lower yield-to-maturity than non-convertible bonds)
• Exchangeable bond : holder can convert the bond into shares of the issuer’s common stock or the common stock of a subsidiary. (lower yield-to-maturity than non-convertible bonds)
Air France OCEANE
Fact sheet
Issue date……………………………… 22/04/2005
Issue amount…………………………... EUR 449,999,989.5
Total number of bonds………………… 21,951,220
Issue price……………………………... EUR 20.50
Nominal value…………………………. EUR 20.50
Coupon rate……………………………. 2.75 %
Repayment date……………………….. 01/04/2020
Repayment price………………………. par
Conversion ratio………………………. 1 to 1
11/01/2015 Pr. Didier Folus 9
3.3. High yield bonds
• High risk (default)
• High return (volatile)
11/01/2015 Pr. Didier Folus 10
Ex. European developped market HY bond issues:
Source : SIFMA, Oct 2014.
11/01/2015 Pr. Didier Folus 11
3.4. Agency bonds (low risk)
• Agency = national or federal public body :
– Student Loan Marketing Association, SLMA or Sallie Mae
– SNCF, RATP…
• Government-sponsored enterprises :
– Federal National Mortgage Association, FNMA or Fannie Mae
– Federal Home Loan Mortgage Corp., FHLMC or Freddie Mac…
• An agency unlikely goes bankrupt (implicit/explicit