Medium-Term Notes (MTN) are a key feature in Private Placement Programmes (PPP) as they are often traded to generate profit.
The secretive nature of Private Placement Programs means that MTN’s are not always fully understood by many investors who actively participate in them. Besides, few finance professionals are experienced with MTN’s, as most traders are not involved in this kind of top-level trading.
The Financial Conduct Authority stipulates that an investor in Private Placement Programmes must be classed as a High Net Worth Individual or a Sophisticated Investor, so they are not widely promoted. The lack of promotion means that there is a lack of knowledge surrounding MTN investment opportunities.
We hope our latest article will offer investors a deeper understanding of PPP’s and MTN’s, therefore providing you with some insight to wealth accumulation – while helping to remove uneducated brokers from your network.
What is a Medium-Term Note (MTN)?
When a large financial institution, government entity or large company wishes to borrow money, they may issue a debt note (MTN) to raise funds. Although not a bond, an MTN is an alternative source of financing to bank lending on a regular and/or continuous basis.
Put simply, an MTN is a type of security, specifically a debt security which allows organisations to fulfil their financial goals. The appeal of MTN’s is that they offer tremendous flexibility in raising funds for organisations as they are tailor-made to meet the issuer’s requirements.
MTN’s can be issued on either a fixed or floating coupon basis, have a more complex structure, or they can also have a variety of maturity dates based on their predefined structure, this flexibility is one of the appeals of MTN’s as a way of raising capital on a short or long term basis.
Organisations utilise MTN’s with the hope of using the finds in the short term to produce more income than the cost of repaying the debt.
Key Features Of Medium-Term Notes
- Fixed-term offering, typically 2 – 5 years (although the term is set by the issuer and can be shorter than one year, or as long as 100 years in length).
- Interest at a rate fixed in advance, or subject to a floating coupon rate
- 100 % repayment by bank on the pre-agreed expiration date
- Not tradable on the stock exchange
- Specified minimum amount (usually high value)
Recent examples of Medium-Term Notes
- United Utilities, frequently offers debt issuance programmes. They recently issued an MTN in 2019 for £7bn.
- Santander, the retail banking giant, recently offered an MTN to the value of 30bn Euros.
- Transport for London currently offers a £5bn Medium Term Note
How Can Investors Earn Money Via MTN’s?
As mentioned above, MTNs feature heavily in Private Placement Programmes. Private Placement Programmes generally operate on an arbitrage-based trading strategy. An arbitrage-based trading strategy takes advantage of setting up a simultaneous buy and sell transaction where the price difference benefits the trader.
An arbitrage trading approach is perfect for trading MTN’s, as traders will buy MTN from the banks at a discounted price, then simultaneously sell the MTN on at a higher price than they purchased it for, although still discounted from its original value. This difference in price enables both the buyer and the seller to generate a return on the MTN as the buyer has still purchased it at a discount. The last buyer in this cycle will hold the MTN to its expiration date, making their return when it expires. Using this strategy, investors and traders can make a substantial profit from MTN’s as they will never trade above its original value.
How can you buy Medium Term Notes?
The purchase and sale of MTN’s are usually ‘brokered’ through a specialist trader. The difficulty of participating in an MTN is finding a top broker that possesses the right connections. We have personally found that most brokers in the city will boast of having many connections, although in reality, these traders are far removed from the upper echelons of Private Placement trading.
If you are a High Net Worth Individual or a Sophisticated Investor looking to invest in MTN’s or Private Placement programs, our website may be a good source of information for you.