Definition
Pagares, Spanish Commercial Paper
A Pagares is a short-term debt instrument issued by companies to raise funds generally for a period of up to two years.
- Maturity: from 1 day to 1 year
- Euro or any other currency authorized by applicable laws and regulations in force in France at the time of the issue
- the legal minimum face value of the Pagares issued within the framework of this Program is EUR 100,000 or the equivalent in the relevant foreign currency determined at the time of issue
- fixed or variable (indexed to $STR for example). The rate is freely set between the issuer and the investor. No coupon is paid between the issuing and the repayment. However, they may be issued at a price different from the nominal value or include a redemption premium.
Presentation of the actors
All of them enjoy market stability, liquidity and competitive financing terms.
Issuers
To finance their treasury needs (investments and current expenses), they issue commercial paper. Issuers are divided into 3 categories: bank and similar financial issuers, non-financial issuers and public issuers.
Investors
Pagares CP's investors are mainly money market funds that go through asset managers to make cash investments in Pagares CPs. These funds are mostly French and European. Some corporates buy also Pagares CPs to optimize their cash flow.
Dealers/Brokers
The intermediaries are in charge of the liquidity of the market. They conciliate issuer's financing need to investors investing interests by negotiating on both sides - they act as intermediaries in the negotiation of the characteristics of the issue. There are two types of intermediaries:
- Dealers which are banks. These are the main intermediaries. They can either buy the paper to resell it immediately to an investor or keep it in their book for later resale.
- Brokers connect the issuer and the investor in order to allow a transaction (brokerage).
They don't have the right to keep a Commercial Paper in their book.
Ratings agencies
Rating agencies assess the risk of non-repayment by issuers in order to help negotiate the rate. The rating agency's report is on the program . A company may not be rated but have a program that is.
Issuing and Paying agent
The Issuing Paying Agent (IPA) collects the details of the transactions from the issuer, the dealer and the investor. The IPA is responsible of all the cash management for the transactions of their clients (issuance and repayments).
Arrangers
Arrangers support and assist the issuer. They are credit institutions with specialized expertise in this type of program.
Guarantors
They guarantee repayment If the issuer defaults. They intervene when an issuer is not rated by a rating agency. Less than 10% of transactions are carried out by issuers with guarantors.
Regulator
Comisión Nacional del Mercado de Valores (CNMV) monitors the market and publishes statistics.
Clearers
BME Clearing is the central securities depository in the Pagares market. Its role is divided into 2 parts: recording all transactions and managing payments. They deliver the ISIN codes that are allocated to each trade in the Pagares market.
Process of creation of a Pagares
1- Introduction to the market
To become active on the market, a new issuer must send its program. This program could be public and includes the company’s terms of issuance, such as its ratings, guarantors, paying agents, etc.
A new issuer is often accompanied by an arranger that helps better understand the market and take the first steps on it. This arranger can be an advisory firm or a market player (an issuing and paying agent or a dealer/broker).
2- Expression of need and negotiation
An issuer will contact the dealers / brokers of its choice indicating the amount he wishes to borrow and its rates. Intermediaries can either buy the paper to resell it to investors or keep it.
Depending on the liquidity of the market, the negotiations can be a lasting process, and each feature of a paper can be renegotiated.
Requests and offers may also come from investors or dealers / brokers who wish to buy Pagares even if the issuer does not currently sell it.
3- Debt instrument creation
The issuers will send a confirmation to their IPA. The latter will request an ISIN code to BME Clearing, in order to identify the title.
Different confirmations are also sent between the back offices of the various parties of the paper (investors, dealer, broker, etc)
And with Onbrane ?
Our Pagares Stories
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