A eurobond is a bond issued in a particular currency, such as euros or dollars, and sold to investors in markets other than the one using the currency of the bond issue. For example, eurobonds in U.S. dollars cannot be a issued in the U.S. Eurobonds allow issuers to offer bonds in different countries, based on the regulatory climate, economy, value of the currency and other factors. Eurobonds make up a large part of the international bond market and tend to have high liquidity. There is a specific process to follow when issuing eurobonds.
Select a Lead Manager
Eurobonds are issued by underwriting syndicates. These syndicates are made up of investment and merchant banks and may be formed in different ways. Generally, the borrower chooses one investment bank to be the lead manager of the bond issue. The lead manager then negotiates with other banks to form the syndicate. Borrowers may also use existing syndicates or ask a particular investment banker to act as lead manager.
Organize a Syndicate
The lead manager negotiates with other banks to form a managing group. This group then negotiates the terms of the bond issue with the borrower. Members of the managing group will also form another group to act as underwriters in the bond issue. The underwriters will commit their own money to buy the bond issue from the borrower – at a set minimum price. They then sell the bonds on to secondary markets at an agreed profit. The managing group will also negotiate with other banks to form a selling group – this is the group of banks that will actually sell the bonds to investors.
Selling the Bonds
Once the syndicate is formed and the terms of the issue are agreed upon, the managing group buys the bonds from the borrower. The managing group then sells the eurobonds to the underwriters, and the underwriters sell the bonds to the selling group. The banks that make up the selling group then sell the bonds on to investors. One thing to keep in mind is that although there are several roles – managers, underwriters and sellers – these roles usually overlap, so that managers may also be underwriters and sellers.
Principal Paying Agent
A principal agent is chosen. This is the bank that is responsible for receiving interest payments from the borrower and passing them on to the investors who buy the bonds. A fiscal agent or trustee may also be appointed by the borrower to handle the paperwork and legal aspects of the eurobond issue and act as principal agent. The trustee will also represent the purchasers of the bond if the borrower defaults. Trustees and fiscal agents are generally banks, and not individuals.