MTN / Bond Reprt (Why they are so Cheap)

MTN / Bond Reprt (Why they are so Cheap)

Posted in the Banking Forum

“Cake or Death?”

Since: Dec 08

Palm Beach

#2 Jan 11, 2009
Private Trading of Medium Term Notes, also known as Mid-Term Notes and MTNs, is essentially capital raised for the purposes of the development of working capital and the upward trend towards strengthening a company's balance sheet. More times than naught, private trade programs encompass the development of new products, technologies and overall expansion. Whereas in this article, In the broad sense and in the most known categorization, we will be discussing Medium Term Note Private Trading which is a completely different investment channel generating tremendous returns for small and large, individual and corporate investors alike.
Investors have limited access when it comes to educating themselves and investing in the high-yield arena of MTN Trading. Unless they have liquidity in the hundreds of millions, most others who have less liquidity for investment find themselves on the outside trying to get a peek in. In this article, the general development of knowledge with regard to private trading, MTNs, BGs and other instrument facets, will explain why and where individuals willing to invest from $10M on up can participate in the world of Medium Term Note Trading.
Why is there such a demand for investing in Private Programs that utilize MTNs and on occasion Treasury Bills?
Since the mid-1990's to the present day, Medium term Note originations total investment dollars have escalated from a estimated, yet traceable, phase of just over $10 billion dollars in mid-1990s to a current level of well over $75 billion dollars through the third quarter of 2008. There have been roughly 6,500 private trade programs done through the third quarter of 2008. Companies in the likes of Sony Capital, Harley Davidson, LG and other well recognized entities have all offered Mid-Term Notes collateralized by their assets for expansion and development. From a low of fewer than 2,500 in all of 1996, you can see that the interest towards Private Trading gains when markets and the economy as a whole degrades catapulting the need for short term, well secured notes backed by established corporations, banks, asset holders and countries.

“Cake or Death?”

Since: Dec 08

Palm Beach

#3 Jan 11, 2009
Hedge Funds, Portfolio Managers and Private Investors are often attracted to these Private Programs and understand the rules and guidelines that follow. Less experienced, smaller investors tend to be dismissed due to the anxiety levels and continuous pestering of updates. High-net worth, seasoned investors have their blocked funds almost always are combined with other clients to build a larger trade bases, if individually large enough, say one billion and up, enter into a Private Trade Program by themselves; however they too may very well be bundled with other client assets to reduce the number of trades being managed. Their blocked funds represent these MTN Trade Programs and are a tremendous economic incentive in their own right by the generation of liquidity by the function of process.
The derived profits most often than not, as well as the leveraged amount of the blocked funds, will go into further capitalization of new companies believed to have significant growth possibilities in industries such as: healthcare, bio-technologies, software/hardware and telecommunications. These Private Trade Programs add value to these companies and further compel advancements in those particular sectors.
Without Medium Term Notes, the potential of utilizing them in Private Trading and the profits derived from such, many of the participants of these programs would never launch over the first tier with regards to the programs they are included in.
Typical Minimum Investment Requirement: Mid-Term Note Trading and investing is not easily accessible to the typical high-net worth investor or well capitalized corporation unless they first know these types of programs exist and then are either introduced to the trading platform from a referring client or through a series of referral educational sites where the client can thereafter request admission. Most Trade Programs typically will accept investors who are willing to commit as little as $25 million to have blocked for the purposes of leverage. Although some Trade Managers have dropped their minimums to only $250K with coupled by a series of A,B,C programs to ramp up the clients capital to higher level trades.

“Cake or Death?”

Since: Dec 08

Palm Beach

#4 Jan 11, 2009
Fund of Funds: A fund of funds holds the leveraged funds of many private partnerships that invest in private trades. It provides a way for firms and individual participants to increase cost effectiveness and thereby reduce their minimum investment requirement. Since a fund of funds is leveraging against those original funds, sometimes up to 20 to 50 times, the accumulated return for that specific funds of funds becomes much more lucrative.
In addition, because of its size and diversification, a fund of funds has the potential to offer greater returns than you might experience with an individual MTN Trade Program. This only holds true to those Programs that are under the $100 million dollar level though since most times the lesser amounts are leveraged through funds of funds or equivalent means.
The main disadvantage, if it could be considered such, is that there is an additional layer of fees paid to the fund of funds manager. Though typically $100 million and up will roll out the welcome mat, investors can on occasion, participate with $250,000 -$10 million to the respective fund of funds manager. For those smaller amounts under $10 million, the platform manager may not let you participate unless you are an accredited investor with a net worth between $1.5 million to $5 million.
Is it worth the time and consideration? There are several key risks in any type of investing since you essentially, with any investment, can guarantee a return (except for low yielding T-Bills, etc.) Private Trading is no exception. As mentioned earlier, the fees of Private Trade Programs that cater to smaller investors can be higher than you would normally expect with conventional investments, such as mutual funds. With a pre-established historical return rate on these smaller (less than $100M) funds may be in the double to triple digits as reflected in previous scenarios. The promulgation of these fees are irrespective and of little consequence to the investor although many investors feel that they deserve more, do essentially doing very little.
In a market as volatile as the one we currently face, it is much harder to find streamlined programs that offer little risk. Transferring of investors' funds is not evidenced in these Private Trade Programs that are at or above $10 million dollars. A block is placed on the client's funds within their account for the duration of the trading period. Hence, the safety the client experiences remains secure with the leveraged program they enter into.

“Cake or Death?”

Since: Dec 08

Palm Beach

#5 Jan 11, 2009
BRUSSELS, Jan 6 (Reuters)- A draft industry agreement to clear multi-trillion dollar credit derivatives trades centrally in the European Union by mid-2009 has collapsed, the bloc's executive European Commission said on Tuesday.

"A firm engagement was expected from the involved industry and regulators. This engagement has not been given," a spokesman for EU Internal Market Commissioner Charlie McCreevy said.

The introduction of central clearing for over-the-counter (OTC) contracts is a core plank of EU efforts to apply lessons from the credit crunch to make markets less risky for investors.

"The commissioner will therefore have to consider the appropriate next steps," the spokesman said.

McCreevy has sole power in the EU to propose regulation that would mandate central clearing of off-exchange traded credit derivatives and, separately, he has launched a wider review of the derivatives sector.

The derivatives industry agreed in principle at a meeting with McCreevy's officials on Dec. 10 to introduce voluntarily central clearing of off-exchange traded contracts within six months.

McCreevy has said central clearing would cut risk in a $47 trillion market at the heart of the credit crunch.



The Commission's objective was to set up a clear roadmap on how to ensure credit default swaps are cleared through a central counterparty, but some industry groups have been reluctant.

The deal collapsed over McCreevy's insistence that clearing of EU-based trades must be done inside the 27-nation bloc.

“Cake or Death?”

Since: Dec 08

Palm Beach

#6 Jan 11, 2009
VARIETY OF SOLUTIONS

U.S. banks which also operate in the EU, such as Goldman Sachs (GS.N), Citi (C.N) and JPMorgan Chase (JPM.N), want to clear all trades in the United States where ICE (ICE.N) and others have emerged to offer clearing services.

Using just one clearer would also avoid the need to tie up capital in more than one pool of collateral at a clearing house to back trades.

"There are a variety of solutions for clearing. The EU is really overstepping its boundaries, pushing for an EU-based clearing house for European trading," a derivatives industry source said.

The International Swaps and Derivatives Association, an industry body, said the industry has made the same commitment to regulators in the EU and the United States to proceed with a clearing solution for CDS.

"We are committed to continuing to work with regulators on both sides of the Atlantic as we move forward with developing risk management solutions that meet regulatory needs on a global basis," ISDA said in a statement.



A senior U.S. bank official said the industry was showing its commitment to centrally clear credit derivatives by meeting with several clearing houses on Thursday, but it would not be forced into geographical solutions.

"There will be competition in clearing anyway," the official said.

In Europe, Deutsche Boerse's (DB1Gn.DE) Eurex and NYSE Euronext's LIFFE (NYX.PA) hope to win a big slice of the credit derivatives clearing market.

Regulators in the United States are also pushing for central clearing of off-exchange traded credit derivatives.

European Commission officials feel an EU-based clearer supervised locally would avoid possible disputes with U.S. watchdogs over European trades cleared in the United States.

“Cake or Death?”

Since: Dec 08

Palm Beach

#7 Jan 11, 2009
Deutsche Bank faces buyer strike over bond move;

Deutsche Bank is facing the prospect of a buyers strike against its own debt and even debt it tries to sell on behalf of others as investors protest against the banks decision not to redeem a bond deal this week.

The German bank shocked bond and equity investors and raised fears about its own capital strength on Wednesday when it became the first big bank to say it would not repay the 1bn ($1.42bn) bond as expected in January.

The move makes it more likely that other banks will not repay their own extendable so-called hybrid-capital bonds. Such instruments helped banks expand their balance sheets before the financial crisis and have played an important role in shoring them up since.

We are treating this issue very seriously and are extremely disappointed with Deutsche Bank, Richard Thomson, of Henderson Global Investors, said.They consistently led us to believe that these deals would be called and they led us to believe that it was not an economic issue but a reputational issue.

Bonds or paper = MTN's as associated with hybrid capital... LT2

Markets are still coming to terms with Deutsche Banks decision not to call its LT2 bond yesterday. It was a big deal its never happened with these kinds of Lower Tier 2 bonds before.

The market had (reasonably) been expecting DB to call the notes in, at par, on Jan. 16. The bond issue was a 10-year deal, with a call date after 5 years (this January). A callable bond, as a reminder, is a debt that can be redeemed by the issuer prior to maturity normally at a premium. The capital raised goes towards banks Tier 2 capital. Thats obviously different to Tier 1, the important stuff that regulators look at, but it could nevertheless affect it.
Deutsche Bank is facing the prospect of a buyers strike against its own debt and even debt it tries to sell on behalf of others as investors protest against the banks decision not to redeem a bond deal this week.

The German bank shocked bond and equity investors and raised fears about its own capital strength on Wednesday when it became the first big bank to say it would not repay the 1bn ($1.42bn) bond as expected in January.

The move makes it more likely that other banks will not repay their own extendable so-called hybrid-capital bonds. Such instruments helped banks expand their balance sheets before the financial crisis and have played an important role in shoring them up since.

We are treating this issue very seriously and are extremely disappointed with Deutsche Bank, Richard Thomson, of Henderson Global Investors, said.They consistently led us to believe that these deals would be called and they led us to believe that it was not an economic issue but a reputational issue.

Bonds or paper = MTN's as associated with hybrid capital... LT2

Markets are still coming to terms with Deutsche Banks decision not to call its LT2 bond yesterday. It was a big deal its never happened with these kinds of Lower Tier 2 bonds before.

The market had (reasonably) been expecting DB to call the notes in, at par, on Jan. 16. The bond issue was a 10-year deal, with a call date after 5 years (this January). A callable bond, as a reminder, is a debt that can be redeemed by the issuer prior to maturity normally at a premium. The capital raised goes towards banks Tier 2 capital. Thats obviously different to Tier 1, the important stuff that regulators look at, but it could nevertheless affect it.

“Cake or Death?”

Since: Dec 08

Palm Beach

#8 Jan 11, 2009
LONDON, Dec 17 (Reuters)- A surprise move by Deutsche Bank not to redeem a subordinated bond at the first scheduled call date hit lower-quality financial bond spreads on Wednesday and may mark the end of new callable Lower Tier 2 bonds.

Deutsche Bank (DBKGn.DE: Quote, Profile, Research) became the first big bank to say it would not exercise an option to redeem its 1 billion euro ($1.4 billion) Lower Tier 2 bank bond <DE393351=SG>, due to mature in January 2014 but with a call date in January 2009.

Its reason for doing so was cost, because it was cheaper to pay a penalty of 88 basis points over Euribor for not redeeming the debt.

ING credit strategists described the move as an "horrendous cocktail" which may set a precedent for other banks to not call such bonds and risk hurting relationships with investors.

"This re-prices the financial segment again and will delay LT2 funding possibilities in general," they said in a note.

The move immediately sparked a 30 basis points widening in the European iTraxx subordinated financial index to about 237.5 basis points, while Deutsche Bank's subordinated credit default swaps widened by about 45 basis points to 250 basis points.

Subordinated European Lower Tier 2 bonds, issued around 2004 and 2005 and seeing their first call dates next year, fell by 8 to 10 points on average. HSBC's (HSBA.L: Quote, Profile, Research) issue, which has a call date in September 2009, was bid at 86.5 percent of face value, down from 96.5 percent last week, according to Jamie Stuttard, head of pan-European fixed income for Schroders.

Dresdner Kleinwort credit strategists Nigel Myer and Folkert Jan Van der Veer said the move could be the "final nail in the coffin of the callable LT2 asset class," which has already seen a dwindling investment base from structured investment vehicles (SIVs) and conduits.

"The longer term implications could be potentially very negative for the banking sector as investors are likely to price callable bonds to either maturity or perpetuity going forward, implying that future financing costs increase significantly," they said in a note.

BOLD MOVE

The risk for Lower Tier 2 bonds, which rank just below senior bonds, is that the debt is not redeemed at the early scheduled dates. Prior to Deutsche's move, the main worry was centred on the lowest-ranked Tier 1 bonds where issuers can opt to defer coupons or not to redeem the perpetual debt at all.

One trader noted that French bank BNP Paribas (BNPP.PA: Quote, Profile, Research) also has a callable bond due in January.

Stuttard said Deutsche's decision had removed the "European taboo about not calling bonds at their first call dates" and "injects some discipline into credit markets.

"Investors have come to expect the market to carry on doing things because that is the way that they have always been done," he said.

"It's not as it if this is an enormous funding market that they are potentially losing access to," Stuttard added, noting that only Credit Agricole (CAGR.PA: Quote, Profile, Research) has issued a subordinated bond in the past few months, raising 250 million pounds ($389 million) via a 15-year Lower Tier 2 bond last week
But it may mean that banks can no longer issue new double-dated LT2 bank debt, at least in the short term.

"Instead banks may issue bullet LT2 bonds that just have a final maturity with no call dates," he added.($1=.7137 Euro)($1=.6422 Pound)(Editing by David Cowell and Hans Peters)

“Cake or Death?”

Since: Dec 08

Palm Beach

#9 Jan 11, 2009
Risk Factors relating to the Notes
Market, Liquidity and Yield Considerations
Notes may not have an established trading market when issued. There can be no assurance of a secondary
market for any Notes or the liquidity of such market if one develops. Consequently, investors may not be able
to sell their Notes readily or at prices that will enable them to realise a yield comparable to that of similar
instruments, if any, with a developed secondary market.

“Cake or Death?”

Since: Dec 08

Palm Beach

#10 Jan 11, 2009
Risk Factors relating to the Issuer
The Issuer extends loans, makes equity investments and issues guarantees primarily to the private sector in
its countries of operation. Changes in the macroeconomic environment and financial markets in these
countries may affect the creditworthiness of the Issuer’s clients. Even severe changes in the macroeconomic
and financial climate should, however, not affect the Issuer’s ability to repay its borrowings, which is assured
above all through the Issuer’s prudent provisioning policy, ample liquidity, and limitations in the Agreement
on its outstanding loans, equity investment and guarantees to the total amount of its subscribed capital,
reserves and surpluses.
Of the Issuer’s €20 billion of authorised share capital,€5 billion has been paid in.€15 billion is callable to
cover the unlikely eventuality that the Issuer encounters difficulties meeting its liabilities. The Issuer has
among the highest quality callable capital of any multilateral development bank, with over 60 per cent. from
shareholders rated AAA/Aaa and over 95 per cent. from shareholders rated investment grade, as rated by
both S&P and Moody’s at 11 August 2008. It is therefore unlikely that a call on the Bank’s shareholders will
not be honoured.
Eugene

Wilmington, NC

#13 Nov 19, 2011
Do u have a credit line BUT you need a collateral instrument to trigger the credit line? NO UPFRONT FEE. We can help!!

or

Do u have commodity transaction needing a Line of credit or SBLC to close your transaction?

We can help! [email protected]
emmanue yates

Scarborough, Canada

#16 Nov 12, 2012
Direct to buyer: for S.S. U.S. MTN's ( the U.S. MUST BE BEFORE THE ISIN's#) contact me asap....([email protected])
JW n FL wrote:
VARIETY OF SOLUTIONS
U.S. banks which also operate in the EU, such as Goldman Sachs (GS.N), Citi (C.N) and JPMorgan Chase (JPM.N), want to clear all trades in the United States where ICE (ICE.N) and others have emerged to offer clearing services.
Using just one clearer would also avoid the need to tie up capital in more than one pool of collateral at a clearing house to back trades.
"There are a variety of solutions for clearing. The EU is really overstepping its boundaries, pushing for an EU-based clearing house for European trading," a derivatives industry source said.
The International Swaps and Derivatives Association, an industry body, said the industry has made the same commitment to regulators in the EU and the United States to proceed with a clearing solution for CDS.
"We are committed to continuing to work with regulators on both sides of the Atlantic as we move forward with developing risk management solutions that meet regulatory needs on a global basis," ISDA said in a statement.
A senior U.S. bank official said the industry was showing its commitment to centrally clear credit derivatives by meeting with several clearing houses on Thursday, but it would not be forced into geographical solutions.
"There will be competition in clearing anyway," the official said.
In Europe, Deutsche Boerse's (DB1Gn.DE) Eurex and NYSE Euronext's LIFFE (NYX.PA) hope to win a big slice of the credit derivatives clearing market.
Regulators in the United States are also pushing for central clearing of off-exchange traded credit derivatives.
European Commission officials feel an EU-based clearer supervised locally would avoid possible disputes with U.S. watchdogs over European trades cleared in the United States.

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