Medium-term Notes

Sam · Posted: Fri Apr 09, 2004 12:35 am Post subject: Medium-term Notes

Medium-term Notes (MTNs) are corporate notes which a company offers its investors through a dealer. These notes were launched in the market under the Rule 415 followed by the U.S. Securities and Exchange Commission (SEC).

Features:

The Medium-term notes have maturities between 1 to 10 years, and often a period of 30 years. The maturity period can be determined by comparing the prices of the note with that of other fixed-income securities.
The coupon rate on the MTNs is higher than on short term notes.
The Medium term Notes must be registered once in every 2 years unlike a commercial paper program. In the meantime, the nominal yield or term of the Note can be changed in accordance with the market demand – a process known as shelf-registration.

Common MTNs:

The most common type of security normally sold through medium term note programs is a fixed rate non-usable senior debt security. Other types include floating rate, zero coupon, non-U.S. denominations, amortizing, multi-currency and subordinated or indexed securities.

Who offers the MTNs?

In most cases, the Commercial Paper Department of investor banks issues the medium term notes. The notes are sold on agency basis from a dealer's desk and are often administered by a bank's specialty group.

The markets for MTNs are investor driven and are offered by the dealers within a specific maturity range. The investor can negotiate with the dealer to meet his investment and funding needs at a specific maturity level.

By issuing this Note, companies can assure themselves of having cash reserves to meet their daily needs. They become more independent to sell a wide range of debt securities.

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