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The most important participant in a bond issue is the Issuer of the bonds. The Issuer is the one with the ultimate need, to raise money and capital for its projects and acquisitions or for refinancing. All of the other participants are there to assist in raising the money.
Bond issues can be made by companies where they need to raise funds over a medium to long term.
There are typically many parties to a bond issue, other than the Issuer and the buyer:
The Investment Banker – also referred to as the Bond Underwriter. They market the bonds to the public (or direct to closed parties) and agrees to buy the bonds from the Issuer and resell them to the Bond Purchasers. Often, the banker will assist in structuring the bond and preparation of the bond issue documents and may solicit bids from multiple underwriters. However, some smaller bond issues may be carried out on a closed-loop transaction where a bank or fund may agree to purchase the entire bond offering and therefore in such case the Issuer may choose to issue a single bond rather than multiple bonds.
The Attorney – They represent the Issuer in the financing and deliver legal opinion at the closing of the bond issue. The legal opinion will cover matters such as confirming the issuer is a valid entity, that the officers and executives of the Issuer hold valid appointment, that the meeting of shareholders calling for the bond offering was properly carried out and that no litigation is pending against the Issuer.
Bond Counsel – It is common practice for the Issuer to retain a bond counsel firm which specialises in bond issues and who will work with the Attorney with respect to legal issues and various aspects of the financing. Bond Counsel will co-operate with the Issuer and the Underwriter in structuring the transaction.
The Trustee – This is a bank chosen by the Issuer. Once the issue is closed and completed, debt service payments are made by the Issuer to the bondholders through a paying agent or Trustee. If the bond issue ever goes into default, the Trustee usually represents the bondholders in remedial proceedings against the Issuer.
Credit Enhancement – This is typically a bank or insurer. It will often make commercial sense for the Issuer to pay a third party to guarantee the bond issue. An insurance company may issue an insurance policy (or financial guarantee) guaranteeing payment of debt service on the bonds, or a bank may issue a Guarantee to underpin the bonds.
Undertaking a bond issue is a complex financial procedure that calls for expert knowledge in co-ordinating all parties to best serve the Issuer. HCC can assist its clients deliver all requirements to the Issuer and through our expert partners, co-ordinate the bond issue. Taking your offering to the market place and ensuring that your bond issue succeeds to raise your company its financial requirement.
To discuss the intricacies of undertaking a bond issue and to discuss the benefits that it may hold for your business, please contact us in confidence where our expert team will be pleased to advise and offer the necessary consultations and introductions.