A Short Review of Debt Capital Markets

Debt capital markets can be treated from various perspectives. Thus, from the functional point of view debt capital market is a system of market relations which ensures accumulation and redistribution of capital. At the same time, from the institutional point of view it is a totality of financial institutions and stock exchanges which guarantee the capital flow. However, the easiest way to understand the idea behind debt capital market is to treat it is as a market where the trade of debt securities takes place.

Debt capital market constitutes a significant part of the capital market (its other segment is represented by equity market). In contrast to money markets, at capital markets, namely, at debt market, companies and governments are able to raise long-term funds.

The market is focused on financial instruments that pay interest. Bonds (government, corporate, municipal, etc.) and loans are considered to be the main financial instruments on the debt capital market. Usually, short-term loans do not belong to debt capital. However, in case they are repeated over and over again, such loans can be perceived as permanent and be counted as a part of debt capital. Bonds and loans typically pay a fixed amount of money in interest. For this reason, debt capital market is mainly treated as fixed income market.

The objective reason for functioning of debt capital markets is rather simple: some market segments hold temporarily free capital while others face a necessity in borrowed funds. Capital mobility is a reciprocal process, thus, through the debt capital markets capital can flow from those who possess it to those who need it.

Features To Take into Account

Turning to debt capital markets seems to be more efficient for companies than issuing equities. For instance, debt capital markets can help a company to finance its expansion and save it from the loss of private ownership, even if this sacrifice is minor. In addition, the cost of servicing the debt capital can be lower than the return on it which gives the company an opportunity to increase its profit. Also, interest payments are treated as a cost of doing business and for this reason they are tax deductible.

On the other hand, the company has to be extremely accurate and punctual when it comes to interest payments: bondholders expect the time and cost requirements to be met. One more threat is connected with the structure of company's capital: if the debt is growing the price of servicing it also increases. In such a situation company has to be sure it is capable of meeting its obligations.

Transactions that take place at debt capital markets are connected with sensitive and confidential information which by no means should be disclosed to the external audience. In addition, such transactions typically involve numerous actors who are not necessarily located in neighboring areas. Considering these reasons, the launch of virtual data room for conducting various transactions within debt capital markets is efficient.

iDeals solutions is a prominent and reliable virtual data rooms provider. They guarantee provision of services that will make all the potential deals at debt capital market safe and secure, and simultaneously quick and convenient.