paper on corporate bonds

8/2/2019 Paper on Corporate Bonds

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PAPER ON CORPORATE BONDS

What Its is ???

A corporate bond is a bond issued by a corporation.The term is usually applied to longer-termdebt instruments, generally with a maturity date falling at least a year after their issue date. (The

term "commercial paper" is sometimes used for instruments with a shorter maturity)

Types

Corporate debt falls into several broad categories:o secured debt vs unsecured debto senior debt vs subordinated debt

Generally, the higher one's position in the company's capital structure, the stronger one's claimsto the company's assets in the event of a default.

Risk Analysis

Compared to government bonds, corporate bonds generally have a higher risk of default Risk depends, of course, upon the

o Particular corporation issuing the bond,o Current market conditions ando Governments to which the bond issuer is being compared ando Rating of the company

AAA and AA: High credit-quality investment grade

AA and BBB: Medium credit-quality investment grade

BB, B, CCC, CC, C: Low credit-quality (non-investment grade), or "junk bonds"

D: Bonds in default for non-payment of principal and/or interest

There are three major players in the industry.

Moodys, or Moodys Investors Service, is probably the best known of the bond rating agencies. Moodys,

founded in 1900, ranks debt and provides risk analysis from offices around the globe. The company also

offers a slew of reports, services and training, but costs are generally prohibitive for average investors.

S&P, or Standard & Poors, also offers a ranking service, but uses a slightly different letter code than does

Moodys. S&P also provides reports and services for investors. But of particular interest to smaller

investors are the free Webcasts featuring S&P analysts.


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Fitch, or Fitch Ratings, is probably the least-well-known of the major players. But thats more likely a

function of poor marketing rather than anything else. Fitch offers the same sorts of services as Moodys

and S&P. And for smaller investors, Fitch offers a free RSS feed of its news releases.

The second tier of bond-rating agencies consists of A. M. Best, Japan Credit Rating Agency, Ltd., Ratings

and Investment Information, Inc. and Dominion Bond Rating Service.

The scores and the scorecards

The highest ranking accorded to any bond is AAA. The three major credit ratings agencies all use that

three-letter code to denote that a bond is as safe as any bond can be.

A chart of the codes used by the three major agencies can be found here.

Moodys ranks bonds with the following codes: Aaa, Aa, A, Baa, Ba, B, Caa, Ca, C. Fitch and S&P use

these codes: AAA, AA, A, BBB, BB, B, CCC, CC, C, D.

The three major agencies also sometimes use intermediate scores such as BBB or BBB-.


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4.10 Exposure in respect of bonds guaranteed by Public Financial Institutions (PFIs)

1. The investments made by the banks in the bonds and debentures of corporates which are guaranteed

by a PFI listed in the Annex 2, will be treated as an exposure of the bank on the PFI and not on the

corporate. Guarantees issued by a PFI to the bonds of the corporates will be treated as an exposure of the

PFI to the corporate whereas the exposure of the bank on the PFI guaranteeing the corporate bond will beto the extent of 100 per cent of the banks investment. Initially, such exposures of the PFI to the corporate

were required to be reckoned to the extent of 50 per cent of the value of such guarantees, being non-

funded exposure, but with effect from April 1, 2003, such exposure are also required to be reckoned at

100 per cent of the value of such guarantees.


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Eligibility Criteria for Listing of Debt Securities

Issuer Eligibility Criteria for Listing

Public Issue Private Placement

Public Sector Undertaking: Min. 51% holding by Central Govt, and/or State Govts.

and/or Govt. Company.

Less than 51% shareholding

As applicable tocorporates




Statutory Corporation under Special Act of Parliament/StateLegislature, Local bodies / authorities:

Min. 51% holding by Central Govt and/or State Govts.And/or Govt.Company

Less than 51% shareholding

As applicable toPSUs




Financial Institutions u/s 4A of Companies Act. , 1956

including Industrial Development Corporations: SLR Bonds Non-SLR Bonds

Eligible Credit rating

Banks: Scheduled banks, and Networth of Rs. 50 cr or above


Corporates : Paid up capital of Rs. 10 crore ,or Market capitalization of Rs. 25 crore.

(Networth in case of unlisted companies)


Infrastructure Companies: Tax exemption & recognition as Infrastructure

Company under related statues/regulation.


Mutual Fund Units: Any SEBI registered Mutual Fund/Scheme:

Investment objective to invest predominantly in debtor

Scheme is traded in secondary market as Debtinstrument.

Eligible Eligible

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