Thanks for asking!
Corporate bonds are born in the boardroom. Whether to raise new
capital, or reorganize existing debt, corporate bonds begin with a
decision by a corporate Board of Directors to make a portion of the
corporation's debt public.
To enter the bond market, a corporation must:
-- Have Five Years of Audited Financial Statements
-- Obtain a Debt Rating
-- Create a Prospectus
-- Make an SEC Filing
-- Establish a partnership with an Investment Bank
"In preparing for a first public bond offering, Breuder explains,
finance executives need to organize a deal team that includes the
investment bank underwriters, the corporate financial officers, and
the attorneys and accountants who will work together to bring the
offering to market. Then the company needs to prepare the application
? written and oral ? for a credit rating. An experienced investment
banker can advise the process, but the corporate officers must furnish
and stand behind the information in the credit rating application.
Getting Ready for a Bond IPO
http://www.businessfinancemag.com/magazine/archives/article.html?articleID=13615&pg=4
Financial Statements
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The corporation must have audited annual financial statements going
back at least five years. Five years is considered the minimum amount
of time necessary to establish a debt/credit profile on the scale
required for debt rating.
A Primer on Financial Statements explains, "Much of the information
that is used in valuation and corporate finance comes from financial
statements. An understanding of the basic financial statements and
some of the financial ratios that are used in analysis is therefore a
necessary first step for either pursuit. There is however a difference
between what accountants try to measure in financial statements, and
what financial analysts would like them to measure. Some of this
difference can be traced to the differences in objective functions -
accountants try to measure the current standing and immediate past
performance of a firm, whereas financial analysis is much more forward
looking." The article goes on to describe the analysis process in
greater detail.
A Primer on Financial Statements
http://pages.stern.nyu.edu/~adamodar/New_Home_Page/AccPrimer/accstate.htm
At this stage, the corporation may seek an auditor specializing in
audit of corporate finances. Debt capital audit/analysis is a further
specialty field.
Google Directory - Business > Accounting > Firms
http://directory.google.com/Top/Business/Accounting/Firms/
Arizona Society of Certified Public Accounts Referral Service
http://www.ascpa.com/Find%20a%20CPA/find_main.htm
Debt/Credit Ratings
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Ratings by independent credit ratings agencies are opinions of
creditworthiness, determined through credit analysis, and expressed as
a proprietary rating. The credit analysis consists of evaluations of
corporate value, financial statement analysis, and evaluation of
management quality. These ratings are used by issuers and investors to
evaluate risk inherent in any particular corporate bond, relative to
all other available bonds.
The predominant debt rating companies are Moody's and Standard and Poor.
Moody's explains its ratings process, however those documents are
proprietary. Access requires free registration at Moody's site.
Understanding Moody?s Corporate Bond Ratings And Rating Process
http://www.moodys.com/moodys/cust/research/venus/Publication/Special%20Comment/noncategorized_number/74982.pdf
A corporation entering the bond market should seek out business
relationships with Moody's, S&P, or other rating agency.
Moody's
-------
Moody's Investors Service
600 North Pearl Street, Suite 2165
Dallas, TX 75201
(214) 220-4350
(214) 220-4355
Email: mary.dodds@moodys.com
Website: http://www.moody's.com
or see
Contacts - Select North America, USA
http://www.moodys.com/moodys/cust/findAnAnalyst/findAnalystGlobal.asp
Standard & Poor's
-----------------
Company Headquarters in New York, NY
Standard & Poor's
55 Water Street
New York, NY, United States, 10041
Telephone: (212) 438-1000
Website: http://www.standardpoor.com/
Fitch Ratings
-------------
Fitch, Inc.
106 East Sixth Street, Suite 900
Austin, TX 78701
Telephone: (512) 322-5317
Tollfree: (888) 262-4820
Fax: (512) 322 5301/ 5332
Website: http://www.fitchratings.com/
Creating a Prospectus
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A bond prospectus is a team effort. The prospectus summarizes
corporate history, credit ratings, debts, creditworthiness. The
prospectus is usually prepared by the corporate finance officers, in
conjunction with the firm's Investment Bankers who assist in corporate
evaluation.
PROSPECTUS EXAMPLE:
Duke Energy - First & Refunding Mortgage Bond (.PDF format)
http://www.duke-energy.com/investors/stocks/prospectuses/docs/150,000,000%20Duke%20Power%20Company%20Series%20Due%202025.pdf
Investment Bankers
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Investment Bankers are individuals or institutions that act as
underwriter or agent for corporations that issue securities. Most
investment bankers are also broker or dealers, and maintain markets
for previously issued securities. Investment banks do not accept
deposits from and provide loans to individuals.
A corporation wishing to issue bonds will establish a relationship
with and Investment Bank.
Technology & Growth Industry Investment Bankers
http://www.nextwavestocks.com/ibindex.html
Google Directory - Investment Banks
http://directory.google.com/Top/Business/Financial_Services/Investment_Banks/
SEC Filings
-----------
Initial SEC Filing are likely to include:
S-3 -REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
http://www.sec.gov/divisions/corpfin/forms/s-3.htm
Again, this process is guided by investment banks, underwriters, and
the corporate finance officers.
Instructions for SEC Corporate Filings are available in .pdf format
from Aspen Publications.
Securities Rules/Forms
http://www.aspenpublishers.com/SECRULES/crpfmttI.pdf
Additional Aspen Publications listings cover topics such as Financial
Statements, and other SEC Filing Regulations and Instructions.
SEC Rules and Regulations
http://www.aspenpublishers.com/secrules.asp?cookie%5Ftest=1
Additional Option
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The Roadshow: "As the offering time gets closer, the company must
decide whether it has a name recognition problem, in which case it
should put together a road show, sending the CFO, support staff and
maybe the CEO to a series of meetings with investors and analysts to
acquaint them with its business."
Business Finance Mag - Bonds
http://www.businessfinancemag.com/magazine/archives/article.html?articleID=13615&pg=4
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The Life of a Bond
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Investing In Bonds offers a series of articles which describe the
"life" of a bond from conception to retirement. You may follow an
imaginary Corporate Bond lifecycle, beginning in Infancy.
Introduction
http://www.investinginbonds.com/loab/intro.shtml
Infancy
http://www.investinginbonds.com/loab/infancy.shtml
Childhood
http://www.investinginbonds.com/loab/childhood.shtml
Youth
http://www.investinginbonds.com/loab/youth.shtml
Adulthood
http://www.investinginbonds.com/loab/adulthood.shtml
Parenthood
http://www.investinginbonds.com/loab/parenthood.shtml
Retirement
http://www.investinginbonds.com/loab/retirement.shtml
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Shortlist - Steps in Bond Financing
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Financing Through A Public Offering - For some small businesses, the
public sale of its securities is the only acceptable means of
obtaining the financing needed to accommodate accelerated growth.
A public offering is the selling of the securities of a privately held
corporation to the public in order to raise needed cash. The
securities to be sold may be common stock, or convertible bonds.
General standards required for a public offering:
-- A product or service with a favorable public image, an
identifiable edge over the competition, and the potential for
solid growth
-- An established earnings record as evidenced by the amount,
stability, and expected growth trend of net income and cash flow
-- Good management
The business and the offering must be sufficiently large enough in
both monetary value and the number of shares to justify the
underwriting cost.
For small offerings, the underwriting and registration costs can reach
as much as 25% of the amount of the funds raised. A first-time public
offering by a business will require the assistance of an investment
banker or underwriter along with other professionals. The investment
banker or underwriter will typically perform the following tasks
related to the new common stock issue:
-- Review with the firm the steps, procedures, and cost estimates of
the public offering
-- Review with the firm the Securities and Exchange Commission (SEC)
and state rules and regulations for the public offering
-- Prepare the underwriting agreement or purchase contract
-- Meet with outside accountant and underwriter's accountants to
decide the financial data requirements for the registration
statement
-- Prepare the registration statement and the prospectus
-- Obtain an indemnity insurance policy
-- File the registration statement with the SEC
-- Hire a registrar and transfer agent for the issue
-- Send copies of the final prospectus to syndicate members, dealers,
and financial services
-- Direct and supervise the effort for the issue
-- Get the issue quoted in the newspapers and listed in investment
guides
-- Advise the company on its responsibilities after the offering
Financing a Business
http://www.michigan.gov/careers/0,1607,7-170-22526_22526_25138-71273--,00.html
Additional Resources
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Business Week Definition - Corporate Bonds
http://bwnt.businessweek.com/Glossary/definition.asp?DEFCode=C52
American Bar Association
The Dark Underside of the Prospectus
http://www.abanet.org/buslaw/blt/blt7-legal.html
Arizona Economic Development Agencies
http://www.abanet.org/buslaw/blt/blt7-legal.html
http://www.ecodevdirectory.com/arizona.htm
Getting a Debt Rating (scroll halfway down the page)
http://www.businessfinancemag.com/magazine/archives/article.html?articleID=13615&pg=5
Search Strategy
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Search Terms:
"corporate finance"
"corporate debt financing"
"corporate equity financing"
bonds "corporate financing"
"investment banks" OR "investment bankers"
sec filings rules regulations
I hope these outlines provide exactly the information you're seeking.
Should you have questions about the materials or links presented,
please, feel free to ask.
---larre
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