BONDS AND SENIOR SUBORDINATE

BONDS AND SENIOR SUBORDINATE

Bonds with a different type of risk

With the definition of subordinated bonds refers to securities whose repayment in the event of liquidation or bankruptcy of the issuer is made later than that of ordinary creditors , including regular senior bonds defined .

The subordinated bonds are distinguished , in fact, from the other obligations that are not based on the type of rate , but for the type of risk .

These are securities with higher risk than that of bonds and therefore are characterized by a higher yield .

The main reason is to be found in the fact that these bonds are not considered debt instruments traditional but are treated as capital and are often more expensive alternative to placement of shares.

In the case of the banks there are different types of bonds to each of which is accompanied by various financial characteristics .



- Tier I Bonds

The Tier I bonds in the presence of negative trends in the management and in the event of liquidation provide their holders the privilege with respect to the holders of ordinary shares and savings shares, but are subordinated with respect to all other claims . They represent the most risky type having characteristics that are common to both debt and equity . In the event that the bank does not pay a dividend to shareholders , the coupon can be deleted.



- Upper Tier II Bonds

They are considered less risky than bonds Tier One . With a minimum term of 10 years in the case of negative developments do not require the removal of the coupons , but only the suspension . The warrants will, in fact , subsequently paid the first year of profit . In this case then there is no provision recapitalization. Are redeemed prior to the actions and obligations Tier I.



- Lower Tier II Bonds

They, too, with a maturity of around 10 years, the Lower Tier II bonds represent the largest category within the privileged subordinates. The coupons are in fact blocked only if it occurs a severe case of insolvency . Early repayment can take place on the initiative of the issuer only after authorization by the Bank of Italy. The duration of the relationship must be equal to or greater than 5 years and if indeterminate must contemplate for a repayment notice of at least five years .



- Bonds Tier III

Bonds Tier III , together with those of Lower Tier II , are the most preferred within the subordinates. They have short maturity , usually between 2 and 4 years old and a renumerazione level than that required for the lower Tier II bonds . In the case of losses the issuer may not use the amounts of securities to meet those losses .