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An Alternative to Bank Financing: High Yield 

Published: May, 2013

Submission: May, 2013

 



Traditionally the Spanish business sector has financed its growth primarily through bank loans. However, the current  restrictions on  credit  (derived not only from the crisis but of growing capital constraints of banks themselves) have to seek funding  alternative  or complementary to the bank. Among these alternatives, highlights the placement of bonds or obligations between  investors  and, especially in recent years, known as  emissions " high yield "  (high performance).


These emissions are those that have a  risk rating  called speculative, to be below a certain level called for  investment-grade,  and that the greatest theoretical risk of default, have a  cost  higher.


Among the  factors  that determine the major risks of these emissions are: (i) the level of  indebtedness  of the issuer, (ii) additional needs  funding  for expansion or acquisition, (iii)  field  of activity, with increased risk or competition, or (iv)  lack  of the issuer in the markets.


Potential investors are usually very professional investors, such investment funds, insurance companies, asset managers, hedge funds, and in general,  professional investors  that, in exchange for a higher level of risk, seeking higher returns.


Should not fall into the error of identifying the highest risk of these emissions, necessarily difficult financial situations, as among the issuers of  bonds  high yield  are well known large companies and in Spain, ONO, Codere Campofrío Cirsa, Abengoa , OHL, among many others.


Emissions  high yield  normally be characterized as  financing " bullet "  (at maturity, 5, 7 or even 10 years), but also have a number of restrictions or obligations to do or not to do  ("covenants") , these give greater  flexibility  to the issuer in its ordinary management that normally exist in bank financing. The bonds usually have  guarantees  real and personal of the subsidiaries of the issuer.


In Spain, the  recent amendment  of the  Securities Market Act  has  eliminated the emission limit  obligations for unlisted companies placements direct obligations, as in the case of emissions  high yield,  to (i) qualified investors (ii) investors subscribing for a minimum of 100,000 euros, or (iii) if the face value of the securities is at least 100,000 euros, allowing structure these broadcasts without society constitute a subsidiary or  spv  in another European jurisdiction, bringing down costs of issuance.

 



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