FL06 – Debt Securities 6/11/15 Prof. Michael Shillig
DEBT SECURITIES
OVERVIEW
General considerations
Relationship of bond prices (or debt security prices) and interest rates
o Bond rating
Issuing process and legal structure
o Legal structure – different trusts structures
Financial regulation
o Prospectus
o Prospectus liability
GENERAL CONSIDERATIONS
Terminology
o Debt securities = loans embodied in tradable instruments
2 types of tradable instruments = (1) issue to bearer; (2)
issuer to order
Issue to bearer = the right in the paper follows right on the
paper i.e. whoever holds the instrument is entitled to the
right embodied in the paper
Transfer is executed by transfer of paper/chattels
delivery
Issue to order i.e. registered securities
Share register is maintained by issuer (usually
company secretary) if there is a share transfer,
there must be a share transfer agreement
Transfer is executed by giving share transfer
agreement to issuer to change register, i.e. issue new
share certificate for the buyer
Present day, distinction between issue to bearer and issue to
order is not really relevant
o Bond = longer term debt securities (10-30 years or longer)
Secured or unsecured
Usually fixed interest rate
o Notes = shorter maturity (1-10 years)
Usually floating interest rate
Issued as part of programme i.e. issued in different
tranches with different risk profiles by SPV by way of
securitisation
Could stretch over a certain period of time
o Commercial Paper = short maturity (1 year or less)
Issuers and Investors
o Issuers
Large public non-financial companies (often rated by Credit
Rating Agencies)
Financial institutions
Governments (US Treasury bonds, UK gilts, German Bonds)
Municipal entities
o Investors
Institutional investors (pension funds, insurance companies)
DEBT SECURITIES
OVERVIEW
General considerations
Relationship of bond prices (or debt security prices) and interest rates
o Bond rating
Issuing process and legal structure
o Legal structure – different trusts structures
Financial regulation
o Prospectus
o Prospectus liability
GENERAL CONSIDERATIONS
Terminology
o Debt securities = loans embodied in tradable instruments
2 types of tradable instruments = (1) issue to bearer; (2)
issuer to order
Issue to bearer = the right in the paper follows right on the
paper i.e. whoever holds the instrument is entitled to the
right embodied in the paper
Transfer is executed by transfer of paper/chattels
delivery
Issue to order i.e. registered securities
Share register is maintained by issuer (usually
company secretary) if there is a share transfer,
there must be a share transfer agreement
Transfer is executed by giving share transfer
agreement to issuer to change register, i.e. issue new
share certificate for the buyer
Present day, distinction between issue to bearer and issue to
order is not really relevant
o Bond = longer term debt securities (10-30 years or longer)
Secured or unsecured
Usually fixed interest rate
o Notes = shorter maturity (1-10 years)
Usually floating interest rate
Issued as part of programme i.e. issued in different
tranches with different risk profiles by SPV by way of
securitisation
Could stretch over a certain period of time
o Commercial Paper = short maturity (1 year or less)
Issuers and Investors
o Issuers
Large public non-financial companies (often rated by Credit
Rating Agencies)
Financial institutions
Governments (US Treasury bonds, UK gilts, German Bonds)
Municipal entities
o Investors
Institutional investors (pension funds, insurance companies)
