In this article we will explain what bond loans are and how they work, which represent a form of self-financing for spas, ie public limited companies. In the next paragraphs, therefore, we will see in detail what are the obligations , who they turn to, who can use them, what are their advantages, their guarantees and their risks.
What are the bonds?
Joint-stock companies have various ways to find funds: one of them is made up of bond loans , a type of medium or long-term loan, which allows the issue of debt securities or bonds . These securities are then put on sale and purchased by investors, who ‘lend’ their money to the company, receiving in exchange a percentage of interest, called a coupon , on a quarterly, half-yearly or annual basis: the bondholders become, therefore, ‘ creditors of the company in question, participating in the business risk, without taking part in any decision-making and management processes within it: this agreement is documented by the titles.
However, in order to guarantee a certain amount of security for investors, companies can only provide a certain amount of bonds: the total value of the securities issued, in this sense, can not exceed the effective capital of the company, that is to say registered in the last approved budget .
How do bond loans work?
By issuing bonds , the company contracts a debt towards investors: this ratio generally has a medium-long term, not less than a couple of years. In some special cases, companies can issue securities for sums greater than those indicated on the balance sheet, provided that the following conditions are met: first, the presence of a mortgage on the properties owned by the company, to cover the bond guarantee up to 2/3 of their market value; secondly, the increase in the share of the bonds must be guaranteed by the presence of bonds issued by the state, provided that the latter do not have an earlier maturity; finally, the company can exceed the amount foreseen by the budget only thanks to a special authorization from the government.
Bond loans: types and regulations
When a bond is stipulated, it is necessary to compile a document, called the program , which certifies the conditions of the relationship between the investor and the company; within the program the social amount paid by the shareholders, the share capital , the sum of the single loan, the settlement plan and the interest rate are specified. In the regulation , on the other hand, the nominal value of the securities, their specific characteristics, the issue price and the repayment terms of the loan are recorded in writing.
There are various types of bonds : the most common is the fixed rate one , which guarantees a regular income to the investor and, therefore, allows to know in advance the percentage of profit; however, these are extremely variable securities, subject to fluctuations, especially in the early stages.
There are also variable-rate securities whose interests depend on the value of the bond, and perpetual bonds , with no maturity, which offer a fixed and unlimited repayment. Finally, we find the so-called bonds without coupons , also called zero coupons , which do not give the right to regular interest: the gain, in this case, is the difference between the purchase value and the value at the time of return.
How much do the bonds make?
Calculating the effective yield of the bonds is quite complicated, as the gain depends on numerous factors, such as the type of securities, the nominal value, the price at the time of purchase and the price provided at the time of surrender; moreover, an exact forecast can only be made in the case of fixed rate or zero coupon securities. In any case, the percentage of receipts must be deducted a percentage equal to 12.5%, intended for taxes.
However, bonds remain a fairly safe form of investment, especially when compared to other types, such as shares. The percentage of risk, in fact, is given by the reliability of the company, which is responsible for the payment of accrued interest and the final reimbursement, namely the balance of the contracted debt, but also by the duration of the title: the longer this is, in fact, the greater will be the fluctuations to which it will be subject in time.
The advice, therefore, is not to invest the entire capital in a single category of securities, but to differentiate investments, including also state bonds or from public bodies, generally safer.