1 Debt Bonds

2 Bonds In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest (the coupon) and/or to repay the principal at a later date, termed maturity. It is a formal contract to repay borrowed money with interest at fixed intervals.[1]financedebtsecurity interestcouponmaturity[1] Thus a bond is like a loan: the issuer is the borrower, the bond holder is the lender, and the coupon is the interest. Bonds provide the borrower with external funds to finance long-term investments, or, in the case of government bonds, to finance current expenditure. Certificates of deposit (CDs) or commercial paper are considered to be money market instruments and not bonds.loaninvestments Certificates of depositcommercial papermoney market

3 Domestic bonds are denominated in the issuer's local currency and offered to local investors. Foreign bonds are those offered to investors outside the issuer's own country of registration and are denominated in the currency of the market where they are listed. Eurobonds, marketed internationally, are issued outside the issuer's country of registration in a currency other than that of the market where they are listed.

4 Bonds An Early Example

5 Figure 24.2 A Bearer Bond and Its Unclipped Coupons Issued by the Elmira and Williamsport Railroad Company for $500

6 Bonds The Issuing Process The mandate Appointing the lead manager (see the parties involved) and, advised by them, choosing the size, structure and timing of the bond issue.parties involved Due diligence Providing and verifying all the information required for the issuer's listing document and the supporting documentation. Legal advisers lead this work. Preparation Preparing the documents including the information memorandum and listing particulars and presenting them to the UKLA and the Exchange. Launch With the due diligence and marketing completed, this is the official announcement of the bond issue when the lead manager invites the syndicate (see the parties involved) to participate in placing the bonds with investors. parties involved Signing and closing The signing is when an issuer and their advisers sign and execute all the documents. Shortly after this and the closing, the issuer receive the proceeds of their bond issue. Secondary market trading With the bonds now listed on the London Stock Exchange they are eligible to be traded by investors, either on the open market or, in the case of Eurobonds, by private deals between institutional investors. Ref; the London stock Exchange

7 Parties involved There are a number of parties to every bond issue, each with their own role to play in assisting the issuer and ensuring the issue's success. Here we summarise the roles of the main players. Lead manager and syndicate The lead manager, normally a financial institution such as an investment bank, is responsible for managing the entire issue process. As well as advising the issuer on the structure and timing of the issue, the lead manager appoints the syndicate, a group of investment banks that will market and sell (and, usually, underwrite) the issue. Legal advisers Responsible for the due diligence process – verifying statements of fact - and for the drafting of the listing particulars and the supporting documentation. Paying agents The paying agent is responsible for receiving a bond's interest payments from the issuer and distributing them to the bondholders. Clearing systems and depositary Euroclear and Clearstream are the two main systems for monitoring and validating the transfer of bonds ('clearing') listed in London – in both the primary and secondary markets. Most bonds are issued in bearer form and held by a depositary (usually a bank) for safe keeping. Trustee Appointed by the investors in the notes, the trustee is the representative of the bondholders, charged with protecting their rights and ensuring the terms of the bond are adhered to. Fiscal agent Acts on the behalf of the issuer to ensure the payment of interest and principal.

8 Bonds The Issuing Process Typical Time Lines Mandate Launch Signing Closing 3 to 8 weeks up to 2 weeks up to 1 week London Listing UKLA LSE Listing application Listing particulars approved Listing granted Listing effective Application for admission to trading Admission grantedTrading may begin * 10 clear business days2 days 1 day ** 2 days

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