35 years: Debt capital markets
Just like sovereigns, corporations raise debt to supplement operational revenues. In this video, Tim covers what a corporate bond is and how it is issued, the importance of credit ratings, and capital structure.
Just like sovereigns, corporations raise debt to supplement operational revenues. In this video, Tim covers what a corporate bond is and how it is issued, the importance of credit ratings, and capital structure.
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9 mins 56 secs
A corporate bond is a bond issued by a corporation in the debt capital market to supplement operational revenues and finance company activities.
Key learning objectives:
Define a corporate bond
Explain the different uses of bond proceeds and their benefits
Discuss the different assessments investors use before financing
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The Bond Market offers a diversified source of capital. For example, it comes from investors rather than borrowing from banks
Also, it’s a longer-term source of capital (some corporate bonds have long maturity dates).
Investment-grade corporate DCM – This is short-hand for companies issuing bonds that are based in developing economies and have investment-grade credit ratings.
High-yield debt – This is for companies issuing bonds from developed countries that have non-investment-grade credit ratings.
Emerging market debt – This captures companies based in developing/emerging economies. It is used as a ‘catch-all’.
Credit Rating Agencies:
These are private-sector companies that provide extensive credit analysis of countries and companies. They offer professional opinions/ratings that describe the level of risk investors face if they buy the debt of a specific issuer. For example, the probability of default.
How are the bonds rated?
Prior to lending, investors assess the seniority of debt. This refers to the legal and contractual order in which debt is repaid if the borrower becomes insolvent or forced to declare default on its debt and is liquidated through the courts.
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