A bond is a debt security, in which the authorised issuer owes the holder a debt and, depending on the terms of the bond, is obliged to pay interest (the coupon) and/or to repay the initial amount at a later date, termed maturity.
While charities are usually on the buying side of the transaction, in 2006 the Wellcome Trust became the first to issue bonds, receiving an Aaa/AAA bond credit rating from Moody's and Standard & Poor's respectively.
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Cambridge University needs to raise up to £300m to finance two major property projects in the city, and is considering issuing bonds for the first time in its 800-year history.
Triodos has launched a climate change bond, which will be used exclusively to finance organisations that actively work against the causes of climate change.
The new economics foundation has launched an investment bond that offers no financial return but will be used by the foundation to support its work creating a “new kind of economy in which people and planet matter”
Motability Operations, the not-for-profit service provider company to Motability, the UK’s leading car scheme for disabled people, raised £500m in September by issuing a seven-year bond with a coupon of 5.25 per cent. This follows a £450m ten-year bond issued in April with a coupon of 6.625 per cent
The Wellcome Trust has priced £275m of guaranteed bonds at the lowest coupon for a UK corporate bond issue of more than 10 years in duration since before the credit crunch.
Income-hungry charity investors are casting around for improved returns. Ben Bennett explains the opportunities and risks with corporate bonds. Investors are currently faced with some important asset allocation decisions. Amidst volatile markets there has been a flight to quality with many investors seeking the safety of government bonds. However, with yields currently at historical lows they offer very little source of potential returns. At the other end of the spectrum, some investors are dipping their toes back into equity markets, hoping that the worst may have been seen. Those following this approach, however, are likely to contend with high volatility and uncertain dividend payments. But, the most popular choice at the start of 2009 has been the middle ground between the two: investing in corporate bonds. Figure 1 shows the respective yields available within different asset classes and highlights just how dramatic the shift in the relative value of corporate bonds has been during the latter part of 2008. One dilemma facing investors is the extent to which company shares can recover lost ground without an improvement in investment grade corporate bonds issued by the same companies. Risk-averse charity investors may take comfort from the attractive level of interest payments on bonds which rank ahead of uncertain dividend payments.
Investment grade corporate bonds provide "a long-term investment opportunity not seen since the 1930s", says Ben Bennett, credit strategist at Legal & General Investment Management.
Desiree Parker reports on the shifting landscape for structured products. According to website StructuredRetailProducts.com, the size of the UK market was £6.7bn last year, a rise of 23 per cent within four years. There is an increasing level of interest from charities, evidencing the growing appreciation of structured products as an effective tool in portfolio construction and the significant increase in the breadth and mix of products being used.
How putting your money in the right place can further your mission
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