Corporate Finance, 4th Edition

Chapter 21Other debt products

What a choice!

In the previous chapter, we first presented the bond as a debt product and we illustrated the key features of a debt product through this simple security. The reader will now discover that there are actually a very large number of products that follow the same logic as that of a bond: remuneration independent from the financial performance of the firm and a commitment to reimburse.

Section 21.1 Marketable debt securities

1/ Short-term marketable securities

The term bond (see previous chapter) is used to refer to marketable securities with maturity of over one year, but firms can also issue shorter-term instruments. Commercial paper refers to negotiable debt securities issued on the money market by companies for periods ranging from one day to one year. In practice, the average maturity of commercial paper is very short, between one and three months. Issuers can also launch paper denominated in foreign currency. Two markets of similar size are active on the European level:

• The ECP (European Commercial Paper) market is based in London and is not regulated.
• The French TCN (Titres de Créances Négociables) on which French but also other European corporates issue. This market is regulated and under the supervision of French market authorities, and offers better secured and more flexible transactions (spot and overnight delivery).

Short-Term European Paper (STEP) is a label adopted in 2006 that has homogenised the documentation for the ...