Financial Market Instruments
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Financial Market Instruments

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Debt Securities Issues

Issuance of debt instruments (Debt Instruments) is a relatively simple source of financing for ongoing operations and/or investments, as an alternative or supplement to a bank loan. Issuers of Debt Instruments are usually blue chip companies generating low credit risk. Redemption of Debt Instruments may also be guaranteed by a high-rating company, e.g. parent.

Issuers of Debt Instruments acquire financing directly in capital markets in:

  • a single issue of Debt Instruments; or
  • multiple issues under Debt Instruments programs

Companies usually opt to launch a Debt Securities issuance programme, under which subsequent issues of various values and maturities are placed on the market. Citi Handlowy acts as: the Programme Arranger, preparing, among other things, the programme structure, documentation, and information materials about the issuer; a Dealer, distributing Debt Securities on the primary market and trading on the secondary market; as well as a Paying Agent.

Debt Instruments (commercial papers) with maturity up to 1 year are usually offered at discount while Debt Instruments (bonds) with maturity longer than 1 year are usually interest bearing bonds with a floating or fixed interest rate.

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Bonds

Bonds are issued under the Bonds Act of 2015. They may have various structures and maturities to reflect the issuer’s demand for financing and the situation in the financial market.

BENEFITS

Securitization

Securitization is a form of financing in which a group of assets, together with the cash flows they generate, is separated from the balance sheet of a bank or other entity and transfer to a special purpose vehicle (SPV), which issues securities / notes and distribute them to the investors in order to finance the acquisition of these assets.
The redemption of securities / notes is secured by these assets, and repayment of the debt securities / notes is made exclusively from funds generated by these assets.
Consequently, securitization is not directly linked to the financial situation of the entity selling the assets, but on the quality of the portfolio being securitized.
The funds raised in securitization may constitute off-balance-sheet financing for the originator.

The underlying assets in securitization should have similar characteristics, profile and a diversified base, e.g., consumer loans, cash loans, lease receivables, credit card receivables, and corporate loans.

The most important features of the product
  • The underlying assets in securitization are mainly loans granted by the bank, primarily: car loans, consumer loans, cash loans, lease receivables, and credit card receivables.
  • As part of the securitization, receivables are transferred from the originator to a special purpose vehicle (SPV), which issues securities / notes in order to finance the purchase of the receivables.
  • The securities / notes are issued in tranches with varying degrees of seniority with respect to the distribution of losses and profits, and the payments depend on the revenue generated by these receivables. The securities / notes are secured by the income from these receivables.

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ADVANTAGES