Medium term notes, also referred to as “MTN” or “MTN’s” (MTNs) are bonds issued under what is known as “MTN programs”. There are two principle types of MTN programs. “Domestic” MTNs are usually listed on the local stock exchange and settlement takes place in the local securities clearing center. Domestic MTN’s are also documented under the local jurisdiction. Euro Medium Term Notes (EMTNs) are issued in the euro markets and are usually listed on Stock Exchanges and settlement takes place via Cedel. EMTN’s are usually documented under English law.
The differences between domestic and Euro Medium Term Notes – program are following:
Domestic MTN EMTN-program
- Coupon Free Free
- Maturity Free Free
- Currency Local/Euro Multicurrency option
- Issuance method Free Free
- Listing Local Exchange Luxemburg
- Settlement and clearing Local center, Cedel
- Documentation Local jurisdiction English law
Generally Medium Term Notes (MTN’s) have the following features:
- The maturity and other issue terms can be structured to suit specific investor requirements. This enables Issuers to respond quickly to “windows of opportunity” in the market.
MTNs are usually offered continuously through a dealer group rather than issued in one tranche underwritten by a syndicate of banks.
Issued tranches can be listed or non-listed
Issued bonds can have a variety of different structures (maturity, coupon, listing etc.)
Issuing method can be syndicated or via a single dealer.
An MTN-program offers issuers tremendous flexibility in the raising of medium and longer-term funds. The ability to offer investor’s tailor-made solutions with respect to, for instance, issue size, coupon structures, or maturity preferences allows issuers to achieve lower funding costs. The issuer also has flexibility over the amount of notes to be issued at any one time and MTN documentation makes issuance in smaller amounts economically viable.
Efficient use of the EMTN market increasingly requires that issuers have an international long-term investment grade credit rating (BBB-/Baa3 upwards). As a result the EMTN market is not suited to those borrowers with relatively small borrowing requirements, whose funding needs can be met in the domestic market where not all investors are yet rating sensitive and name recognition is still important. For such issuers a domestic MTN is the better alternative.