Prospectus can help with Long Term Notes (LTNs)
Long term notes – also referred to as “LTN”, are debt securities that will mature after a year of issuance. Often, a note or a bond differ in terms of the length of the debt securities, and an LTN, by its simple definition, may last longer than 10 years or even 25 years. Long term notes also vary from traditional bonds in the way the contract with the creditor is structured. A long term note, like any debt security, is a promise form the issuer to the loaner that he or she will be paid back. Some of the most common long term notes or LTNs around are US bonds and even South America bonds like Brazil LTNs. Often, countries and organization will classify these notes using various colors, like purple LTN or blue LTNs etc. Many of the notes either bear a yearly interest payment, or sometimes bi-annually, and are often discounted for buyers. Brazilian LTNs may have a maturity date of, for example, 30 years, while a US LTN may have the maturity at 50 years.
There are many clearing agencies that allows for the settlement of LTNs on their systems such as the Depository Trust Corporation, DTC, Euroclear and Clearstream in Europe, and various Asian depositories and banks as well. Each have their own method and eligibility status for clearing and settlement.
Prospectus for LTN
Before a long term note is issued most likely the issuer allocated a prospectus to potential investors. The Prospectus essentially helps create the notes, and in the document itself will lay out the terms of the LTN, such as the interest-rate, maturity date and payment dates, as well as the risk factors, clearing and settlement information and general corporate information related to the long term notes (this is also true for medium term notes). In order to clear or settle with any local or central depository, a prospectus is usually mandated. For instance, Euroclear or Clearstream would not allow one to clear or settle any long term notes without first submitting a prospectus that fulfills their eligibility requirements. There are other banks and association like Bloomberg that also allow for trading LTNs.
Benefits of LTNs
The most basic benefit – and this varies from company to company – is that a long term note signifies stability. When a country like the Untied States, or a company like Microsoft, issues a 30 year bond or note, they are essentially telling you that their country (and company) will be around in 30 years and therefore it is a safe ‘bet’ to investor int he LTN. In theory, the longer the notes the safer the investors, although this is not always accurate. In addition, the longer the maturity date the smaller the interest rate will be as well.