Most of the syndicated debts are of the order of $ 50 million. As far as the upper limits
are concerned, amounts involved are of as high magnitude as $ 5 billion and more. For
instance, in 1990, Euro-tunnel borrowed $ 6.8 billion.
On an average, maturity periods are of about five years (in some cases it is about 20
years). The reimbursement of the loan may take place in one go (bullet) or in several
installments.
The interest rate on Euro-debt is calculated with respect to a rate of reference, increased
by a margin (or spread). The rates are variable and generally renewable (roll over credit)
every six months, fixed with reference to LIBOR (London Interbank Offered Rate). The
LIBOR is the rate of money market applicable to short-term credits among the banks of
London. The reference rate can equally be PIBOR at Paris and FIBOR at Frankfurt, etc.
it is revised regularly.
The margin depends on the supply and demand of the capital as also on the degree of the
risk of these credits and the rating of borrowers. Financial institutions are in vigorous
competition.
There are two types of commissions:
- Front-end commission such as commissions of arrangement, subscription and
participation; - Annual commission for commitment, facility and agency.
There exists an active secondary market of Euro-debts. Numerous techniques allow
banks to sell their titles in this market.
- External bond market
Euro-bonds are similar in many respects to the public debt sold in domestic capital
markets. Unlike domestic bond markets, however, the Euro-bond market is almost
entirely free of official regulation; instead it is self-regulated by the Association of
International Bond Dealers. The prefix Euro indicates that the bonds are sold outside the
countries in whose currencies they are denominated. Until recently, the Euro-bond
market has been substantially smaller than the Euro-credit market. Borrowers in the
Euro-bond market must be well known and must have impeccable credit rating (for
example, developed countries, international institutions and multinational corporations).
Two kinds of bonds are treated in external bond market.
- Euro-bonds (or international bonds), underwritten by an international syndicate
and placed on the markets of countries other than that of the currency in which the
issue is made. - Foreign bonds issued on the market of a country and bought by non-residents, in
the currency of that country.