Extendible MTNs find new favour
The US extendible MTN market has seen a raft of longer-dated deals of late, tapping investor demand for two- and three-year debt which is not naturally filled by money market instruments or traditional term bond issuance. The standard extendible MTN product is a floating rate note with an initial maturity of 13 months, which investors can elect to extend out to a maximum of five years, with a pre-set pricing step-up every year. These are specifically targeted at money market funds as a higher yielding product, which allow investors to exploit the relative steepness of an issuer's credit curve and still meet 2a7 eligibility requirements.
Now though, banks are issuing customized extendible notes with much longer initial and final maturities for issuers seeking to lock in significantly cheaper funding than through traditional term bonds. These are targeted not at 2a7 funds but at securities lenders and corporate investors who want to increase their floating-rate exposure.
Last December, Goldman Sachs issued a $750 million extendible note for SLM Corp with a two-year initial maturity, the option for investors to extend this every six months and a potential final maturity of 10 years.