Notes in dollar and euro denominations can be bought following european launch last week
UK investors can buy individual corporate bonds direct through the InterNote system launched into Europe last week by Incapital Europe.
With a minimum investment of e1,000 or $1,000, InterNotes are offered to the market at par price with a set coupon and redeemed at that price. This increases transparency and eliminates downside risk in relation to collective corporate bond vehicles, according to managing director of Intercapital Europe Roy Fraser.
'When buying into a corporate bond fund, there are initial and annual management fees to pay,' he said. 'The portfolio is typically open-ended and has no specific maturity date. Yields are tied into the fluctuating interest rate cycle.
'With the InterNote system, the investor pays the par price with all fees built in and receives a predetermined coupon at their chosen frequency until maturity. This is typically higher than yields offered by bond funds, net of fees.'
Ford's FCE Bank unit is the first borrower to offer notes into Europe through the system, with its inaugural issuance last week. Fraser said Intercapital is currently in talks with various high-profile companies about them issuing bonds via the InterNote platform.
He added companies offering InterNotes will be investment grade ' Ford is A-rated for example. While there is investor appetite for high-yield offerings, Fraser feels such bonds are inappropriate for individual investment without additional credit research.
He expects competition in the European individual bond market, having already received notice that at least two major players are considering entering the marketplace.
InterNotes will be sold on a continuously offered basis, meaning all the companies on the platform will offer a certain amount of debt each week based on investor demand, with varying coupon and maturity profiles.
Last week, for example, FCE Bank offered two-year euro notes paying 5%, four-year euro notes offering 5.75% and five-year euro notes offering 6%. Fraser said the group will be launching sterling tranches in the near future, at which time the minimum investment will be £1,000.
In addition to a number of primary dealers, such as HSBC Bank, UBS and Credit Suisse First Boston, InterNotes will be available through registered intermediaries.
Advisers buy the notes at a discount to par, at 99.3p for a 100p bond for example, and sell it on to their clients at par, taking the difference as remuneration.
Although InterNotes are designed as a buy-and-hold investment for lower-risk investors, Fraser said, dealers are committed to creating a secondary market in which holders can sell notes on if they are looking for capital gains.
With this in mind, InterNotes will be listed on the Luxembourg Stock Exchange, with details available on Bloomberg.
However, investors should be aware the InterNote market will not be as liquid as that for larger scale public issues, Fraser said.
Incapital Europe is the London-based subsidiary of Incapital Holdings LLC, which has underwritten more than £20bn of InterNotes for the US market since it launched the system in 2001.
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