CORPORATE BOND FUNDING
For clients with substantial assets that are available to be used as collateral, funding by the creation of corporate bonds can provide an attractive option. This works particularly well for clients with in ground assets i.e, gold, silver copper, iron ore, granite, oil and gas, which are valuable assets against which banks typically will not lend. For in ground assets, geology reports which are NI 43-101 or JORC compliant prepared by recognized geological firms and demonstrating proven or measured reserves are essential, or in the case of power generation or similar projects, power purchase agreements from purchasers with strong credit ratings are necessary.
Bonds (debt obligations collateralized by specific assets) are created for the client using its assets as collateral, and the bond manager/underwriter then has the bonds rated (S&P, Moodys or Fitch), registered and sold. A bank serves as the trustee and creates a sinking fund from the business profits to pay the interest and retire the bonds. There are pre-issuance costs such as the rating agency fees, legal expenses and trustees fees which the client must pay which can exceed $400,000. The overall fees at closing typically run from 5% to 8%. The underwriter sells the bonds to institutional investors. The time required to complete a bond financing is generally about three to four months.