What is a Medium-Term Note (MTN)?
A medium-term note is a debt note that usually matures in 5–10 years, but the term may be less than one year or as long as 100 years. They can be issued on a fixed or floating coupon basis.
A medium-term note (MTN) usually refers to a note payable that comes with a maturity date that is within five to ten years.
A medium-term note (MTN) is a note that usually matures in five to 10 years. A corporate MTN can be continuously offered by a company to investors through a dealer with investors being able to choose from differing maturities, ranging from nine months to 30 years, though most MTNs range in maturity from one to 10 years.
What is a Note?
A note, or note payable, is a legal document that represents an amount owed from a borrower to a lender or investor. Notes generally include a principal amount, or face value, that is lent to the borrower and is expected to be repaid at a later date, in addition to scheduled interest payments. Notes can be thought of as a form of fixed income security that is similar to a bond.
The notes can be issued by various organizations and entities, including federal governments, state or provincial governments, municipal governments, corporations, non-profit organizations, etc.
Examples of notes include:
* Bank notes
* Treasury notes
* Unsecured notes
* Secured notes
* Mortgage-backed notes
* Municipal notes
* Euro notes
* Promissory notes
* Demand notes
* Convertible notes
* Structured notes
* Term notes
Understanding Medium Term Notes (MTN).
By knowing that a note is medium term, investors have an idea of what its maturity will be when they compare its price to that of other fixed-income securities. All else being equal, the coupon rate on an MTN will be higher than those achieved on short-term notes.
In order to distinguish medium-term notes from other notes, the definition of “medium term” must be identified. Generally, when comparing fixed-income securities, all else being equal, medium-term notes will come with a higher stated rate or coupon rate than shorter-term notes.
Dealers act as an intermediary between the issuing company and the investors. They offer MTN with varied maturity dates. These Dealers play a very important role in the market by acting as a connecting link and thereby facilitating the trade. Investors before investing in a Medium Term Note analyses various aspects like credit ratings of the company, business structure, and products of the company, the coupon rate of the note, the maturity of the note, interest rate, financial strength, and so on.
The issuing company of Medium Term Note has to submit various documents to the Securities Exchange Commission (SEC). Those documents are as follows:
1. A detailed prospectus
2. A Universal Shelf Registration statement for debt securities and other types of securities
3. Preliminary and Final Term Sheets
4. Product Supplement
5. Pricing Supplement
6. Press Release
Advantages of Medium Term Note.
* The rates of return on MTNs are usually higher than on other short-term investments.
* These notes are custom defined case by case and can be tailored to both issuers and investors needs (within legal requirements).
* For investors, it may serve as a compromise investment opportunity between short-term investments and bonds with long maturities.
* Availability to raise the funds non-publicly.
Disadvantages of Medium Term Note.
* Higher costs of servicing
* Due to strict issuance documentation requirements, issuers may prefer issuing public bonds instead.
Medium-Term Notes Vs Bonds.
Medium-term notes are debt securities issued by the organization over a period of time continuously with maturities usually ranging from 5 years to 10 years. Unlike bonds that are issued once, MTN is issued and sold continuously by a dealer or various dealers over a period of time.
Medium-Term Notes (MTNs) are an important source of debt finance for the issuing body. Because of the flexible nature of the MTN, both the investor and the issuer prefer this instrument. It gives higher coupon rates in comparison to other short term investments and comes up with varying maturities.
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