Debt Capital Markets

Debt Capital Markets, or DCM, is the area that supports companies in raising debt capital through bonds. Debt instruments are structured and placed with investors here. Through this market, companies and governments raise money from a broad range of lenders. The difference from a bank loan lies in the creditor base: instead of a manageable group of banks, a wide range of institutional investors such as insurers, pension funds and asset managers stands behind it, trading paper rather than maintaining a lending relationship. Common features include fixed coupons, bullet repayment and standardised documentation. Floating-rate bonds also exist. Particularly in high yield bonds, financial covenants often apply only to specified actions.

Pricing follows the credit rating, with the line between investment grade and high yield changing the investor base and therefore the cost abruptly. A public offering in the European Union generally requires an approved prospectus, while private placements with qualified investors are exempt. A German particularity is the Schuldschein loan, legally a loan rather than a security, which requires neither prospectus nor rating and therefore offers mid-sized companies a practical route to institutional investors.

In transaction practice the bond market matters above all for the permanent financing of large acquisitions, while the period until placement is covered by a bridge loan. Beyond the coupon, documentation is decisive for issuers, because it defines their freedom of action across the whole term: baskets for additional borrowing, distributions and asset sales, provisions on security, and the treatment of subsidiaries outside the obligor group. Because bonds are traded and the creditor base changes, amending these terms later is laborious and expensive, which explains the care taken at first issue.