Debt Capital Markets

Euromoney Learning Solutions

How long?

  • 3 days
  • in person

What are the topics?

Euromoney Learning Solutions

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Who should attend

  • Junior Corporate Finance
  • Front Office Sales
  • Senior Management
  • Relationship Managers
  • Lawyers
  • Risk
  • Compliance
  • Audit
  • Anyone interested in understanding how the Debt Capital markets operate.

About the course

Learn the rationale for debt financing, borrowers & debt capital markets

Reasons you should attend this course:

  • The Collective Learning Experience: Working together in teams, delegates learn from shared experiences. They will gain the skills necessary to understand and operate in a Debt Capital Markets environment.
  • Participants will be involved in “Scenario Based Case Studies”, where they will be given the opportunity to practice the skills they have learnt in “simulated” environments. Increasing their knowledge retention.
  • Attendees will gain a thorough understanding of how the Capital Markets operate from Debt Issuance, through to Trading and Settlement.
  • They will understand the various types of Debt Instrument, from short term RCF and Repo right through Bonds to ABSs and CDO.
  • Attain the skills to price Debt Securities though theoretical probabilities and Credit Agency Ratings
  • They will also learn how to price Debt Securities from Credit Spreads and Spreads over Mid Swaps.
  • They will gain the necessary knowledge of Covenants and the important role they play in investor protection and therefore the value of debt instruments.
  • To gain a full understanding of the Issuance Process. From the Primary Markets, Origination, Syndication, Underwriting and Distribution…….
  • And Secondary Market Trading, Settlement and Custody and Regulation.

Course Aims - Participants will:

  • Learn how corporates understand their Capital Costs through WACC and ERP. How they decide how much Debt or Equity they should issue.
  • Learn who the major issuers and buyers are and which products are used for short and long-term financing. From Private Loans to Public Debt.
  • Be able to identify different types of Debt and assess the return and risk of these products… the Risk Reward Ratio
  • Be able to identify different types of bond, such as Domestic, Government, Eurobonds, Yankees, and Dim Sum. And from MTNs, Callables, Coco’s etc.
  • Appreciate the role of IRS in the creation and pricing of bonds.
  • Understand market terminology such as “spread over mid swaps”
  • Have a working knowledge of the Securitisation Market, from ABSs to CDOs. And understand latest market trends such as the “Leverage Loan Market” and “Cov-Lite deals”
  • Learn about the new Digital Bond Issuance. The introduction of DirectBooks and how Bond Issuance may never be the same.
  • Be updated on current and changing Regulations affecting Debt Capital Markets

Pre – Course Optional Learning (Upon Request) For each of the following, there will be a brief video explaining how the subject works and the basic formulas necessary to understand them. Short videos, no more than 10 minutes long, explaining how the formulas work. There are excel exercises available to practice what you have learnt.

  • Time Value of Money (Compounding and Discounting)
  • Bond Pricing : Understanding Fixed Income
  • Understanding the Yield Curve
  • Basic Interest Swap Pricing

Agenda

Day 1 – Cost of Capital and The Debt Capital Markets

Raising Capital

  • Cost of equity and debt
  • Weighted Average Cost of Capital (WACC)
  • Financial leverage
  • Market conditions

Scenario Based Case Study: Calculating the Weighted Average Cost of Capital

  • Participants are split into Teams and asked to calculate the WACC of various companies from different countries. They then report to the group explaining the reasons why the various companies would be better off issuing Equity or Debt

Issuers / Borrowers

  • Major Issuers and Investors
  • Corporate Fund Raising - Decision Making
    • Short Term
    • Bank Loan (Secured v Unsecured)
    • Revolving Credit Facility (RCF)
    • Commercial Paper
    • Repo
    • Long Term
    • Bank Loan
    • Bond Issue

Scenario Based Case Study: Corporate Debt Financing

  • Participants look at various corporates and decide what is the best way for them to finance debt given the market conditions. Teams must explain their reasoning to the rest of the group

Government Bonds

  • “Risk Free” Bonds
    • USA etc
    • Understanding the Yield Curve
    • Exercise: Basic Pricing of a bond.
  • Sovereign Bonds ….. Governments issuing in a Foreign Currency
  • Government Bond Issuance
    • US Treasury Auctions – Primary Dealers
    • Case study: We examine how the Auction operates
  • Other Government Issues

Credit

  • Credit Rating Agencies
    • Credit Rating Process
  • Credit Spreads, Probability of Default and the Recovery Rate

Scenario Based Case Study: Credit Spreads v Probability of Default

  • Participants working in their Teams calculate Credit Spreads based on Ratings and Probability of Default. Teams discuss their findings
  • Credit Spreads
  • “Spread over Govvies”
  • Investment Grade v High Yield Debt

Scenario Based Case Study: Bonds Around the World

  • Teams look at bonds from around the world and discuss why they have their current spread and credit rating. An in depth look at Interest Rates and Credit Spreads.

Debt Finance Products

  • Domestic, Foreign and Eurobond
  • Globals
  • International bonds
  • Public versus Private Issues
  • FRNs (Floating rate notes)
  • Fixed rate
  • Medium Term Notes
  • Callable, Puttable, Convertible etc
  • Covered Bonds
  • CoCo’s
  • Basel III
  • Tier I and 2 Capital

Day 2 - Enhanced Financing Using Derivatives

  • Interest rate swaps
  • IRS Structure and Cash Flows

Scenario Based Case Study: How Banks make money from IRSs

  • Teams are given client 2 client scenarios. Clients are looking to swap from Fixed to Floating or vice versa. Participants must use the current price to decide if the clients can achieve the effective cost of funding required and how much the bank can make from these trades.
  • Understanding spreads over “Mid Swaps”
  • Asset swaps
  • The move from Libor to OIS rates
  • Currency swaps
  • Using a X Currency swap to Finance in an alternative currency
  • Exploiting the yield curve

Scenario Based Case Study: Derivative Enhanced Bond Issues

  • Participants create bond issues using IRS and Currency Swaps to source funding at the required cheaper cost.

Asset Financing – Securitisation

  • The Birth of the MBS (Ginnie Mae - PO and IO Securities)
  • Asset Backed Securities
  • Why securitise?
  • The collateral pool
  • Role of seller, servicer and SPV
  • Capital structure
  • MBS v CDOs…..understand the differences
    • Credit cards and other types of asset-backed
  • What’s the Future for Securitisation?
  • CLOs and Leveraged Finance

Scenario Based Case Study: Corporate Securitisation

  • Participants look at various Corporate Scenarios and decide whether securitisation is the best option.

Investor Protection

Events of Default

  • Debt Seniority
    • 1st and 2nd Lein / Senior Unsecured / Junior Unsecured etc
  • Hybrid capital
    • Debt /equity continuum
      • Preference shares to convertibles and more…
  • Covenants
    • Why they can make or break a deal!
  • Tax gross up / redemption

Why Documentation Matters

  • Purpose of Documentation Overview
  • Prospectus or Offering Memorandum
  • Term Sheet
  • Indenture

Overview of the Documents

  • Trust Deed or Fiscal Agent
  • Global Notes
  • 10b 5 Letters

Provision Types

  • Payment Provisions
  • Indenture Provisions
  • Sinking Fund / Callable/ Puttable/ Convertible…provisions

The Covenant Package

  • Why use Debt Covenants?
  • Top 10 Covenant Metrics
  • Positive and Negative Covs
  • Case studies: examples of how these are used to protect the investor
  • Events of Default
  • IG V HY Bond Covenants

Scenario Based Case Study: How Covenants work in real life

  • Discuss how and why bond covenants provide protection to investors
  • Which covenants do you feel are most important in today’s markets?
  • Do the covenants offer real protection to the investor?
  • What happens if the covenants are broken?
  • Teams report to the group and discuss their findings

Day 3 - Anatomy of a Bond Issue

  • Pre Launch
  • Launch and Roadshow
  • Issue
  • Post Issue
  • ICMA Recommendations

Pre-Launch

  • Stage 1 – Pre-Launch
    • The Mandate
    • Forming the Syndicate / Bookbuilding
    • Will the Issue be Underwritten?
    • Can the Issuer Issue?
    • Can the Guarantor Guarantee?
    • Structuring the Issue
    • Appointing of Parties
    • Roadshow

Scenario Based Case Study: Bond Issuance Simulation

  • Participants will break into syndicates and be given various borrower profiles and market conditions. Syndicates must devise the most appropriate Bond Issue strategy for the client given their requirements

  • Stage 2 – Launch Date

    • Prospectus / Term Sheet
    • Comfort Letter
    • Signing
    • Escrow
    • Inform CSD, Clearing System and Custodians
    • EEA MAD & MAR
  • Stage 3 – The Launch

    • Pricing
    • Allocation
    • Stock Market Listing
    • Closing

Scenario Based Case Study: Pricing the Bond Issue

  • Participants in their Teams are asked to price Bond Issues
  • They must calculate and take into account
    • Yield Curves
    • Credit Spreads
      • CDSs
      • Rating Agency
    • Recent Issues
  • Report to the Group and answer questions about the issue.

The Life Cycle of a Bond Issue (Part 2)

Scenario Based Case Study: Bond Allocation

  • Participants work in their teams to decide how they will allocate a bond issue.
  • They must decide on what basis they will allocate the issue. Top clients get all of their allocated requests, or on a pro rata basis
  • What do the Regulations say?

  • Stage 4

    • Secondary Market
    • Bond Trading
    • Settlement
    • Scenario Based Case Study: Term Sheet
    • Participants are given a new issue to and asked to fill out the Term Sheet

Virtual Bond Issuance

  • Book Building On Line
  • DirectBooks Communication Platform for Bond Issuance
  • Efficiency
    • Single distribution Point
    • Advanced Controls
    • Increased Consistency
  • Order Management System (OMS)

Selling Restrictions and US Regulations

  • Selling restrictions
  • Regulation S
  • Rule 144A

Course summary and close

Experts

Mark Doran

Mark worked in Investment Banks including HSBC and Bank of Montreal for nearly 20 years. During this time he worked in Global Custody and then as a trader, running books in FX, bonds and derivatives. Mark has run courses all over the world including Amsterdam, Dublin, London, New York, Hong Kong,...

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Debt Capital Markets at Euromoney Learning Solutions

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