A medium-term note (MTN) is a debt note that usually matures – that is, is paid back – between 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.
Contrasted with conventional bonds, MTNs can be offered continuously through various brokers, instead of issuing the full amount at once. Also, in contrast to conventional bonds market, the agent (typically investment bank) in MTN market is not obliged to underwrite the notes for the issuer and the agent is thus not guaranteed funds.
Floating rate medium-term notes can be as simple as paying the holder a coupon linked to Euribor +/- basis points or can be more complex structured notes linked, for example, to swap rates, treasuries, indices, etc. The amount of the issues usually ranges from $100 million to $1 billion.
When they are issued to investors outside the US, they are called "Euro Medium Term Notes" (EMTN). These can allow both investors and issuers to enter foreign markets easily. In that case, the requirements are similar. Emissions must have a standardized document, called program, which can be used across all issues and the notes are (mainly) of maturity shorter than 5 years. Similarly to Euro-bonds, EMTNs are not subject to national regulations, such as registration requirements. Even though the EMTNs can be traded throughout the world, most offerings are distributed in London. As this represents significant increase in risk for the investors, it may result in higher interest rates for these notes. On the other hand, put options guarantees investors possibility to redeem the principal before the maturity (at some specific point of time), which leads to lower interest rates.
Disadvantages
- Higher costs of servicing
- Due to strict issuance documentation requirements, issuers may prefer issuing public bonds instead.