IA Fintech Member Insights: Bond180
There is a significant cost associated with issuing bonds. An issuer (say a corporation) has to hire an intermediary (an investment bank) to do everything from finding investors that will purchase the bonds (if not, to underwrite the bonds) to determining the interest rate and completing the administrative processes.
The issuance process is lengthy and costly, often taking greater than a year to go from planning to execution and potentially costing tens of millions when all costs are taken into account. As a result, it typically only makes sense for companies to consider issuing bonds when they have a large enough financing need to justify the time and costs associated with going through the process. In turn, intermediaries are incentivised to focus on deals where their fees will justify their time and costs as well.
This creates a gap in the market to facilitate simple incremental borrowing. What do we mean by ‘incremental borrowing?’ Let’s say a company knows it has to raise £1bn. Currently, it would probably just go to the public markets and do a large single issuance of £1bn, assuming the market will allow such a raise. With the possibility of incremental funding at scale, the company can divide that £1bn into smaller clips. For example, the company may opt to issue 20 rounds of £50mm over a period of a year or more. By breaking down the large sum into ‘increments’, the company has the flexibility to raise what it needs when it needs it, and can even negotiate terms of each issuance round individually, such as different maturities to spread their refinancing requirement in the future.
Bond180 hopes to make incremental borrowing a reality. It’s important to stress that large public transactions are (and will remain) a core financing activity for major issuers, providing valuable competitive price discovery, large sums of money, and generally easy terms if the market is strong. However, our vision is to take incremental borrowing from a fringe financing activity to a viable core option for major issuers, and an ongoing and valued financing tool for smaller corporate borrowers. Through the power of digital technology, we hope to streamline key steps in the issuance process (like sourcing investors and negotiating a contract) in order to make incremental borrowing more economically feasible. Issuers will have the flexibility to issue amounts that suit them rather than necessarily deferring until larger capital needs.
Additionally, investors can gain access to a ready new source of bespoke investable assets to match their investment needs. Crucially, both issuers and investors will benefit from cost savings in the issuance process and through digital efficiencies that optimise administration, reporting, and settlement.
Further information about Bond180 here.