Euro Notes or Euronotes are like promissory notes issued by companies for obtaining short-term funds. They emerged in the early 1980s with growing securitization in the international financial market. As they are denominated in any currency other than the currency of the country where they are issued. Also, they represent a low-cost funding route. Documentation facilities are the minimum. They can easily tailor to suit the requirements of different kinds of borrowers. Investors too prefer them because of short maturity. They are legal tender in the form of a banknote that can use in exchange for goods and services in the eurozone. The market of Euro notes comes in seven denominations: 5, 10, 20, 50, 100, 200, and 500 euro.
On the advice of the lead arranger, it issues the notes, gets them underwritten, and sells them through the placement agents. After the selling period is over the underwriter buys the unsold issues. They carry three main cost components: Underwriting fee; One-time management fee for structuring, pricing, and documentation; and Margin on the notes themselves. The margin is either in the form of spread above/below LIBOR or built into the note price itself. When the issuer plans to issue Euronotes, it hires the services of facility agents or the lead arranger.
The documentation is standardized. The documents accompanying notes are usually underwriting agreement, paying agency agreement, and information memorandum showing, among other things, the financial position of the issuer. The notes are settled either through physical delivery or through clearing.
In the course of time, a few variants of Euronotes issue system have evolved. The first is the revolving underwriting facility in which there is a sole placement agent who allocates the notes among investors at a uniform preset yield. The second is the tender panel system in which the placement agent forms a panel of banks for placing Euronotes on behalf of the issuer. Also, The tender panel members submit tenders to the placement agent indicating the amount and price of notes they would like to acquire.
In this case, the price is set by open competition and so it goes in favor of the issuer. However, the placement agent may not have the same level of commitment as it is found in the case of the sole placement agent. The third variant is the continuous tender panel in which the underwriters constitute a tender panel for each drawdown of notes. They buy them if left unsold, during the offer period. This system brings in competition among the underwriters.
Euro Notes is also available for Medium-term. Medium-term Euronotes are just an extension of short-term Euronotes as they fill the gap existing in the maturity structure of international financial market instruments. They are a compromise between short-term Euronotes and long-term. Euro bonds as their maturity ranges between one year and five to seven years. The short-term Euronotes are allowed to roll over repeatedly over five to seven years.
Every three or six months, the short-term Euronotes are redeemed and a fresh issue is made. Alternatively, a medium-term Euronote is issued to get medium-term Euronote is issued to get medium-term funds in foreign currency without any need for redemption and fresh issues. Medium-term Euronotes are not underwritten, yet there is a provision for underwriting.
This is to ensure the borrowers that they get the funds even if they lack sufficient creditworthiness. They are issued broadly on the pattern of US medium-term notes that have been found there since the early 1970s. Medium-term Euronotes carry a fixed rate of interest, although floating rates are also there. In recent years, the multi-currency structure has come up. The issuers are mainly banks, sovereigns, and international agencies.
Euro Notes, also known as Euronotes, are short-term promissory notes issued by companies to raise funds. They emerged in the early 1980s and are denominated in currencies other than the currency of the country where they are issued.
They are issued based on the advice of a lead arranger who underwrites and sells the notes through placement agents. After the selling period, the underwriter buys any unsold issues.
The costs typically include:
The documentation is standardized and typically includes:
Yes, Euro Notes are legal tender in the form of banknotes and can be used for transactions within the eurozone.
There are a few variants including:
Yes, medium-term Euro Notes serve as a bridge between short-term Euro Notes and long-term Euro Bonds, with maturities ranging from one to seven years.
Issuers are mainly banks, sovereign entities, and international agencies.
Euro Notes can carry fixed or floating rates of interest, and multi-currency options are also available.
Short-term Euro Notes are typically redeemed every three to six months, with fresh issues being made thereafter.
