Bonds / Debentures / Notes / Derivatives


Bonds, Notes and Debentures

 

Bonds and Notes are negotiable debt instruments generally issued by Companies or government authorities. It is a way to borrow money from investors without having to go to the banks. The issuer of the debt instrument writes an unconditional promise to pay an amount of money to the investors at a determined future date under specific terms. Bonds and Notes can be secured or unsecured.

 

Loan notes are a form of debt instrument issued by a company. It entitles the holder to payment of principal and interest according to the terms of the loan note instrument. Loan notes are essentially used as a form of deferred consideration and the holder becomes an unsecured creditor of the issuing company. 

 

Debentures generally are unsecured to raise capital for specific projects and business expansion and is typically backed up only on the basis of the good name and credit history of the issuer. These debt securities carry either a floating or a fixed-interest coupon rate with a maturity date to repay the principal to the investors.  For unsecured debentures issued to private investors, please use the Unsecured Loan Note and Conditions template.

 

Convertible Bonds

 

Convertible Bonds are Bonds that can be converted into shares of the issuer at the discretion of the investors. This will allow the investor the participate in the upside of an issuer upon IPO or increase in the value of the issuer's shares. It is less risky than buying the stocks outright as investors can hold onto the bonds as a debt instrument should there be no listing or the share price went down. Bondholders also have priority over shareholders in the event of insolvency or liquidation. The value of the Convertible Bonds would be equivalent to that of a typical bonds plus an option to purchase the stocks. As it is a hybrid between stocks and bonds, Convertible Bonds typically offer higher yields than stock but lower yields than typical bonds. Please refer to the Convertible Bonds Terms and Conditions for issuing to private investors.

 

Pre-emption rights are rights for the existing shareholders to buy the securities first on the basis of equal price and terms. There are no common law pre-emption rights. Shareholders may, however, be bound by pre-emption provisions in the articles of association or a shareholders' agreement over new shares: convertible bonds may be regarded as equity securities and are therefore subject to the statutory pre-emption rights to receive offers of new securities before they are allotted to third parties. This is an important point to check prior to issue.

 

Derivatives

 

The market standard derivatives documentation is the ISDA Master Agreement and its related Annexes, which are copyrighted and cannot be reproduced without permission. We have included the ancillary documents in relation to the ISDA Master Agreement, typically relating to default, calculation, and termination. For example, margin notice, notice of default, notice of early termination and statement of calculation.

 
Keywords:

Types Of Derivatives

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Types Of Swaps

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