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Financing Using Bonds

In: Business and Management

Submitted By SabinaGabriela
Words 634
Pages 3
Financing using stocks

Issuing stocks and bonds

The issuance process is coordinated by investment banks.

Functions of the investment banks:

a) Subscribing = taking the risks of unfavorable price fluctuation while distributing new titles;

b) Consultancy = on the issuance calendar; selecting the other members of subscribing syndicate; coordinating the issuance process and coupons cashing/paying commissions to other participating banks;

c) Selling the new titles.

Stages of the issuance process:

1. The beneficiary contact a coordinating bank (an investment bank) = lead manager;

2. The lead manager organizes the subscribing syndicate, formed of:

a) Subscribing group (lead manager plus two-three investment banks) = they undertake the investment risk;

b) Banking group (banks and other financial institutions contacted by the subscribing group) = undertakes the issuance risk accepting to buy part of the titles from the subscribing group. If selling all the new titles is not successful, this group will subscribe the titles left;

c) Selling group = buys the titles from the banking group and resells it to final buyers at issuance price. The role of this group is to insure a fast sell, but it doesn’t undertake any responsibility regarding the unsold titles (this remains with the banking group);

3. The beneficiary and subscribing group set the terms of the issuance prospect = value of issuance, coupon, maturity, issuance price, reimbursement of loan.

Coupon depends on:

- Financial market conditions (LIBOR is the benchmark in Eurocurrency market);

- Credibility of the beneficiary (lower the credibility, higher the margin over LIBOR);

- Inflation at issuance and estimation on future inflation;

- Beneficiary’s business risk;

- Currency of…...

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