Private Sector Debt Instruments

Private Sector Debt Instruments

Private Sector Bonds

Bonds are debt securities issued by the government or joint stock corporations for borrowing purposes. The maturity terms of private sector bonds can be one year or more and may be issued with fixed or variable interest rates. Private sector bonds are mostly sold through a consortium consisting of more than one intermediary institution.

The bond holder is a long term creditor of the issuing company. The only right that the bond holder has over the company is merely his credit, and has no right to participate in the company management. The legal relationship between the bond holder and the company ends at the end of maturity. Bond holder is not exposed to the profit/loss risk of the bond issuing company and shall receive his principal and interest, regardless the company makes profits or not.

The most important factors that influence the proceeds of bonds are their liquidity and risk. Since company bonds carry higher risk compared to government bonds in consideration of bankruptcy and default in repayment of interest and capital, they mostly offer higher interest. In the case of bankruptcy or liquidation of companies, company debt is repaid first, and therefore, bond holders will have priority of payment over the company shareholders.

With the exception of public debt securities, bond issues are subject to the arrangements of the Capital Markets Board of Turkey. Private sector bonds may be offered to the public or sold without being offered to the public.

Commercial Papers

Commercial papers are discounted short-term borrowing instruments, which are subject to the arrangements of the Capital Markets Board of Turkey. The maturity term of commercial papers may not be longer than one year. Commercial papers are discounted on the basis of their maturity term.

Asset-backed Securities

Asset backed securities are debt instruments issued by institutions authorized to establish asset financing funds, collateralized by the assets in the financed portfolio. Asset backed securities may be traded on exchanges.

Institutions authorized to establish asset financing funds are banks, leasing and financing companies, mortgage companies and brokerage houses. Asset backed securities may be issued by asset financing funds only. Asset backed securities may be sold to qualified investors with allocation method or by public offering.

An asset financing fund is an asset with no legal personality, created by asset backed security holders on account basis, and may be established for a definite or indefinite period.

Consumer loans (excluding mortgage housing loans) and mortgage loans, loans for motor vehicles, project finance and corporate loans, receivables from leasing contracts, and receivables of the Housing Development Administration of Turkey from real estate sales may be transferred to the portfolios of asset financing funds and asset backed securities may be issued under the collateral of such receivables.

Asset-based Securities

Asset-based securities are issued by banks, financing companies and companies authorized to carry out financial leasing, real estate investment trusts, and public institutions authorized to issue securities, and which are collateralized by the assets in their balance-sheets.  

Asset-based securities are under the general liability of the issuers. Assets and receivables that may be subject to asset-based securities issuance are consumer loans, commercial loans, receivables from financial and operational leasing agreements, receivables from export transactions, receivables from banks’ specialized loans given to craftsmen and artisans and small enterprises, notes receivables originating from real estate investment companies from the sales of real estate or agreements representing a promise to sell property, receivables originating from the sales of real estate of the Housing Development Administration of Turkey, substitute assets, notes receivables originating from installment sales of goods and service producing joint stock companies other than banks and state owned enterprises including those to be privatized according to the related regulation, and other assets whose features will be determined by the Capital Markets Board of Turkey. Collateral assets must be available for written and/or electronic monitoring in order to allow discriminating from the issuer’s other assets.

These assets shall not be used for any other purposes, shall not be pledged, shall not be used as collateral, shall not be subject to injunction decisions of courts, and shall not be included in the bankruptcy process, even for the purpose of collecting public claims until the asset-based securities are redeemed.

Asset-based securities may be offered to the public or sold to qualified investors without being offered to the public.