The bonds are a particular form of financing entirely dedicated to corporate companies, which issue bonds in favor of the investor, who in this case plays the role of the lender.
What are bonds?
The bonds are considered as a form of long-term financing and, in fact, it is a real debt that is contracted by the company towards a third party, that is the shareholders of the same. The peculiar characteristic of this financing is that it can be subscribed by anyone : any person can become a shareholder.
The shares paid by each shareholder for corporate securities represent the value of the debt that the company is contracting and these capitals that are paid into the company are always present among the items in the approved financial statements.
In the case of a bond loan, the investor can at any time obtain the demobilization of a part of the invested capital and this is the most important difference with the traditional mortgage.
This form of financing is very common among companies, which in this way can obtain large sums for the financing of activities. Obviously, this type of financing is regulated by a strict regulation that sets limits and conditions of use, to regulate its diffusion and avoid its abuse.
How does it work?
The first rule of bond loans regulates the issue. In fact, the companies can issue securities for a value higher than the double approved balance sheet and must not even be higher than the reserves present in the same financial statements. This is a fundamental restriction to guarantee investors , who in this way can have the certainty of receiving their entire loan back at any time, based on a subdivision indicated at the time of issue.
However, under the law there are specific circumstances that allow companies to issue a higher proportion of bonds than is normally expected. This can happen in several cases:
– to guarantee the bonds issued, a property mortgage was opened on the company’s properties for a value at least equal to 2/3 of the market value of the bonds;
– there are registered securities, which have been issued or, in any case, guaranteed by the State, which are used to guarantee the bonds issued. These registered securities must necessarily have a value greater than half of the amount of the bonds issued and must have a maturity after these;
– for special needs, the company may receive a special delegation from the government authorities to exceed the issue limit, but must in any case ensure its solvency at any time by showing adequate guarantees for the lenders.
Having said this, the methods of repayment of securities issued as part of a bond loan must follow the principle of randomness. In particular, the regulation on the subject of bonds requires that a public drawing of lots must be carried out based on the numbers of the coupon held by each shareholder who participated in the loan. The date on which the draw is to be made and the date on which the refund is to be issued are regulated: the repayment usually coincides with the due date of the coupon, ie with the date on which the interest on fixed assets ceases to accrue.
Within 10 days of the drawing, the numbers of the coupons drawn must be communicated via the Official Journal.
Each start of a bond loan must provide for the formulation of a regulation, which sets out the specific characteristics and the nominal value of the bonds, the method of issuing the loan and its repayment. A program must also be published, detailing the total amount, the amortization plan and, above all, the remuneration rate for shareholders, ie the percentage of interests to which they are entitled for the asset.
The yield on shares in bonds
The return shows significant differences with other types of loans, especially in the composition of the interest rate. This is a detail not to be overlooked, because the return obtained by the shareholder, which is derived from the difference between the value paid upon issue and that received on return, is subject to the taxation that regulates interest and premiums according to the law in force.
For the calculation it is important to understand the method of payment by the company:
– in the event that it is prior to the enjoyment date, the shareholder must only pay the amount of the nominal value;
in this case, for the calculation it is necessary to evaluate when the payments have been made and the actual period of enjoyment to calculate the yield.
– If the payment is subsequent to the enjoyment date, which subscribes to the obligations, it must pay an addition for the accrual that corresponds to the portion of interest not taken for the holiday of the paid-up capital;
in this case, the value of the return is calculated on the basis of the nominal value of the rate, multiplied by the days of no enjoyment.