Capital Markets - Debt Capital Market Flashcards
What’s DCM
Debt Capital Market
Four Types of Bonds?
Fixed Rate Bonds, Floating Rate Bonds, Equity Related Bonds and Asset Backed Securities
What are fixed rate bonds?
Securities with pre-determined rate of return and fixed interest rate and maturity fo 5, 10 or 20 years. Investors will receive fixed interest rate + a complete capital at the end of the term
What are floating rate bonds?
Linked to federal interest rate. Fluctuates over time and thus pays a variable interest rates
What are equity related bonds?
Debt securities paying interest rates which can be converted in to Equity under certain conditions
What are asset backed securities?
Asset backed securities consist of vehicles which consist of mortgage loans, credit card receivables, auto loans,
Bonds vs Bank Loans
You pay less interest on bonds than you pay on a bank loan
What banks like to do on a loan portfolio?
They like to diversify and do not like to gamble on a single borrower.
What are the different type of fees that an investment bank charge to the issuer?
Management, underwriting and selling fees
What’s the job of credit rating agency?
Credit rating agencies researches the companies and provide their credit rating i.e., the ability of the borrower to repay the debt/loans
Who are the big 3 credit rating agencies?
S&P, Moody’s and FitchRatings
How long does the bond issuance process take?
25-35 days
Financial products……
evolve over time and their structure changes depends on the needs of investors and borrowers. This was a reason behind securitization
What is securitization?
Securitization is a process in which different loans including commerical loans, leasing, credit card debts will be packaged into a SPV (special purpose vehicle) which will then be sold to investors.
What is Syndication?
Syndication is the process of group of banks come together to offer loans. It reduces their exposure and also helps them earn a commission, interest and expand their client base.
