FL06 - Debt Securities

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)