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Part IIIC International Debt Read Ch 13 pp. 443-451

1-2. International Debt Markets. The international debt market offers the borrower a wide variety of different maturities, repayment structures, and currencies of denomination.The markets and instruments vary by source of funding, pricing structure, maturity, and subordination or linkage to other debt and equity instruments.The three major sources of debt funding on the international markets are bank loans, Euronotes and bonds..

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Part IIIC International Debt Read Ch 13 pp. 443-451

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    1. Part IIIC International Debt Read Ch 13 (pp. 443-451)

    2. 1-2 International Debt Markets The international debt market offers the borrower a wide variety of different maturities, repayment structures, and currencies of denomination. The markets and instruments vary by source of funding, pricing structure, maturity, and subordination or linkage to other debt and equity instruments. The three major sources of debt funding on the international markets are bank loans, Euronotes and bonds.

    3. 1-3 Exhibit 13.5 Int’ll Debt Markets & Instruments

    4. 1-4 International Debt Markets Bank loans and syndications: International bank loans have traditionally been sourced in the Eurocurrency markets. There is a narrow interest rate spread between deposit and loan rates of less than 1%. Eurocredits are bank loans to MNEs, sovereign governments, international institutions, and banks denominated in Eurocurrencies and extended by banks in countries other than the country in whose currency the loan is denominated. The syndication of loans has enabled banks to spread the risk of very large loans among a number of banks (this is significant for MNEs as they usually need credit in an amount larger than a single bank’s loan limit).

    5. 1-5 International Debt Markets The Euronote market: Euronotes and Euronote facilities are short to medium in term and are either underwritten and non-underwritten Euro-commercial paper is a short-term debt obligation of a corporation or bank (usually denominated in US dollars) Euro medium-term notes is a new entrant to the world’s debt markets, which bridges the gap between Euro-commercial paper and a longer-term and less flexible international bond

    6. 1-6 International Debt Markets The International Bond Market: A Eurobond is underwritten by an international syndicate of banks and other securities firms and is sold exclusively in countries other than the country in whose currency the issue is denominated A foreign bond is underwritten by a syndicate composed of members from a single country, sold principally within that country, and denominated in the currency of that country The Eurobond markets differ from the Eurodollar markets in that there is an absence of regulatory interference, less stringent disclosure rules and favorable tax treatments for these bonds

    7. 1-7 Mini-Case Questions: Tirstrup BioMechanics Which of the many debt characteristics – currency, maturity, cost, fixed versus floating rate – do you believe are of the highest priority for Julie and Tirstrup? Does the currency of denomination depend on the currency of the parent or the currency of the business unit that will be responsible for servicing the debt? Exhibit A is Julie’s spreadsheet analysis of what she considers relevant choices. Using these, what would you recommend as a financing package?

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