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Middle Aged (35-54)


North American (General)


Note: Transcripts are generated using speech recognition software and may contain errors.
Let's discuss the process of underwriting a labeled bond through a bank. It's very similar to any other type of bond it starts with the bank evaluating investor demand for this type of offering. We start by determining the value of the business by discounting the cash flow and look at the comparable companies, precedent deals, etcetera. We arrive at a pricing range with a minimum and maximum price that institutional investors will purchase this issue. The issue will be priced typically within the range, but it may be priced outside the range in case of a very heavily oversubscribed offering or it may be re priced below the range if demand is lower than expected. If it's a social or a green bond, the bank will assist the issuer to draft a social or green bond framework, select a market standard like the social bond principles or the green bond principles from. I see Emma and get a second party opinion from a verifier to ensure that the projects are eligible. The bank then considers the market conditions. Is it a hot or a cold market? What is the investor appetite or risk level in the market right now. The bank will also work on the structuring. Is it going to be a domestic or international bond? Is it going to be retail or institutional? What maturity? What security package? What covenants then it's time to start actually selling the deal. There are usually two types of underwriting commitments or offerings, firm commitment or best efforts in a firm commitment? The underwriter buys the entire issue and is responsible for selling it on in a best efforts basis. The most common the deal is marketed but the underwriter doesn't make any promise about how that deal will be performing or how much of it is sold. A road show is launched to take management in front of investors. A successful road show depends on presenting the management structure and governance of the business as investors believe that these are linked to good returns. Additionally, the investors will want to know more about the business. It is important to highlight the risks and be upfront about them. Next is the strategy of the business, both medium and long term. What are the strategic initiatives? How is it going to create sustainable value over the long run? In addition, a thorough analysis of the industry or sector will look at trends in the industry. The use of proceeds will be discussed in particular in light of the social or green projects that the bond will be financing after the roadshow is concluded, starts the book building process. A prospectuses is sent to investors as well as a price range that investment bankers expect investors to be interested in. The initial price then leads to a commitment at a revised more firm price. This is how the book of demand is built with a list of orders at different prices. The bankers look at all the orders and decide what the clearing price will be. So the issue is fully closed. The orders are then allocated to investors. They might not get all of the orders they wanted. If the book is oversubscribed, a large investor base is good, it will help achieve price stability. In the secondary markets, access to the market is always going to be critical. So in pricing the issue, there are a couple of trade offs. There's tension in the choices. The issuer wants a price low enough to support aftermarket performance, but not so low to feel that the money was left on the table. Finally, the bonds are settled and delivered to the investor's account. They can be sold and bought in the markets through a clearing house. The bonds can also be listed on an exchange for increased visibility and transparency. In the end, the issuer receives the proceeds into their account and can start investing in their social or green projects.