IF-Distinction between Euro Credit and Euro Bond Market:

•        Both Euro bonds and Euro credit (Euro currency) financing have their advantages and disadvantages. For a given company, under specific circumstances, one method of financing may be preferred to the other. The major differences are:

1.      Cost of borrowing: Euro bonds are issued in both fixed rate and floating rate forms. Fixed rate bonds are an attractive exposure management tool since the known long-term currency inflows can be offset by the known long-term outflows in the same currency. In contrast, Euro currency loans carry variable rates.               

2.      Maturity: Euro bonds have longer maturities while the period of borrowing in the Euro currency market has tended to lengthen over time.

3.      Size of the issue: Earlier, the funds available for lending at any time have been much more in the inter-bank market than in the bond market. But of late, this situation does not hold true. Moreover, although in the past the flotation costs of a Euro currency loan have been much lower than a Euro bond (about 0.5 % of the total loan amount versus about 2.25 % of the face value of a Euro bond issue), compensation has worked to lower Euro bond flotation costs.

4.      Flexibility: In a Euro bond issue, the funds must be drawn in one sum on a fixed date and repaid according to a fixed schedule, unless the borrower pays a substantial prepayment penalty. By contrast, the drawdown in a floating rate loan can be staggered to suit the borrower’s needs and can be repaid in whole or in part at any time, often without penalty. Moreover, a Euro currency loan with a multi-currency clause enables the borrower to switch currencies on any roll-over date, whereas switching the denomination of a Euro bond from currency A to currency B would require a costly, combined, refunding and reissuing operation.

•        Speed: Funds can be raised by a known borrower very quickly in the Euro currency market. Often, a period of two to three weeks should suffice. A Euro bond financing generally takes more time, though the difference is becoming less significant.