Medium-term note (“MTN”) programs assists in the selling of debt securities on a regular or intermittent basis.
Medium-term notes are medium-term, fixed-interest debt securities that are normally issued up to 10 years, i.e. the maturity date is typically within 10 years of issuance. A good portion of MTN issuance has maturity dates ranging from 5 to 10 years, though by definition a medium term note can have a maturity between 1 and 10 years.
- Fixed term: 1-30 years
- Interest at rate fixed in advance, or subject to floating coupon rate
- 100 % repayment by bank on expiration date
- Not tradable on the stock exchange
- Minimum amount: to be negotiated between a buyer and seller
- Subject to withholding tax
Sell Medium Term Notes
Companies normally sell the MTNs through broker dealers or underwriters to institutional investors and to other entities, such as pension funds.
MTN Selling Advantage
- For many here are some advantages of investing in medium-term notes, including:
- Bonds are issued at par
- Interest is not accrued
- Payment options monthly, quarterly, or semi-annually
- Maturities range from 1 to 25 years
How to Sell MTNs
MTNs are sold via selling agents. Typically an issuer of medium term notes will post an offering over a range of possible maturities, such as one year to many more. An MTN issuer can also post rates as a yield spread over Treasury securities which would have the same maturity. Subsequently, a selling agent will provide the rate data and information to the brokers or investors or the investors clients. Issuers are may lower their posted rates once they raise the desired amount of capital at a noted or agreed upon maturity. Also, MTN issuers can change their offered rates as market conditions and prevailing interest rates change. Issuers may effectively withdraw from the market by suspending the medium term note sales or, alternatively, by posting narrow offering spreads of the MTN over the comparable Treasury yields at all of the posted maturity ranges of the debt securities. When an investor or broker dealer notes interest in an MTN offering, the selling agent or broker typically will notify the MTN issuer to obtain a confirmation of the terms of the note transaction. Within a certain fixed timeframe or range, the investor/broker may have the option of selecting the actual MTN maturity, subject to final agreement by the issuer.
MTN Clearing and Settling
Medium-term-note programs and offerings typically settle in global form. If the debt securities clear and settle in the United States, and often in the western hemisphere, The Depository Trust Company (“DTC”) will act as the clearing and settlement agency. This is called ‘book entry’. When a medium term note is issued in the book-entry system, an agent bank for the issuer uses a computer link with The Depository Trust Company to enter the descriptive information and settlement details of the MTN offering. In Europe the common depository is Euroclear and Clearstream, who may or may not assist with the clearing and settlement of MTNs or EMTNs (euro medium term notes).