Pricing Partially Guaranteed Bonds : Valuation of Bonds Benefitting from a World Bank Partial Guarantee

The absence of sovereign bond issuances with World Bank guarantee support for almost 15 years and the customized application of the WB guarantee instrument led potential investors in the Ghana bond to ponder the best way to value the instrument. Th...

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Main Author:	Launay, Vincent
Format:	Working Paper
Language:	English en_US
Published:	World Bank, Washington, DC 2016
Subjects:	CAPITAL MARKETS BASIS POINTS FINANCING DEFAULTS PAYMENT OBLIGATIONS PRINCIPAL VALUATION INCOME INTEREST GUARANTEES MATURITY DATE TREASURY BOND DISCOUNTED CASH FLOW DISCOUNT RATE ISSUANCES TREASURIES LIQUIDITY VALUATION METHOD CREDIT RATING AGENCIES TOTAL DEBT BONDS EQUAL SHARE DISCOUNT PROBABILITY OF DEFAULT LIQUIDITY PREMIUM PRICE PRINCIPAL PAYMENT PARTIAL GUARANTEE PAYMENTS INTERNATIONAL BANK CASH FLOWS DEBT CAPITAL INSTRUMENTS PAYMENT DEFAULT MATURITY BOND ISSUANCES PRESENT VALUE BULLET MATURITY BOND BOND ISSUES TREASURY YIELD BOND YIELD PAYMENT OF PRINCIPAL BOND ISSUANCE TRADING MARKET INSTRUMENT SOVEREIGN BOND PAYMENT DEBT CAPITAL MARKET MARKETS BOND ISSUE INTERNATIONAL DEVELOPMENT FREE BOND DEFAULT PAYMENT COUPON BONDS GUARANTEE PAYMENTS DEBT SERVICE RATING AGENCIES POTENTIAL INVESTORS TYPES OF INSTRUMENTS INVESTORS YIELD CURVES PRINCIPAL PAYMENTS BANK GUARANTEES FUTURE VALUE BANK CREDIT YIELD TO MATURITY REPAYMENT AMORTIZATION PAYMENT OF INTEREST ISSUANCE REMAINING DEBT SHARES FACE VALUE DEFAULT MARKET CREDIT RATING BOND MATURITY TREASURY EVENT OF DEFAULT TIME OF DEFAULT CREDIT RISK DISCOUNT RATES SECURITY BOND RISK SHARE COUPON BONDHOLDERS CHECK BANK GUARANTEE INSTRUMENT DEBT SERVICE PAYMENT GUARANTEE RECOVERY RATE CASH FLOW
Online Access:	http://documents.worldbank.org/curated/en/2016/02/25918942/pricing-partially-guaranteed-bonds-main-report http://hdl.handle.net/10986/23758

id	okr-10986-23758
recordtype	oai_dc
spelling	okr-10986-237582021-05-25T10:54:41Z Pricing Partially Guaranteed Bonds : Valuation of Bonds Benefitting from a World Bank Partial Guarantee Launay, Vincent CAPITAL MARKETS BASIS POINTS FINANCING DEFAULTS PAYMENT OBLIGATIONS PRINCIPAL VALUATION INCOME INTEREST GUARANTEES MATURITY DATE TREASURY BOND DISCOUNTED CASH FLOW DISCOUNT RATE ISSUANCES TREASURIES LIQUIDITY VALUATION METHOD CREDIT RATING AGENCIES TOTAL DEBT BONDS EQUAL SHARE DISCOUNT PROBABILITY OF DEFAULT LIQUIDITY PREMIUM PRICE PRINCIPAL PAYMENT PARTIAL GUARANTEE PAYMENTS INTERNATIONAL BANK CASH FLOWS DEBT CAPITAL INSTRUMENTS PAYMENT DEFAULT MATURITY BOND ISSUANCES PRESENT VALUE BULLET MATURITY BOND BOND ISSUES TREASURY YIELD BOND YIELD PAYMENT OF PRINCIPAL BOND ISSUANCE TRADING MARKET INSTRUMENT SOVEREIGN BOND PAYMENT DEBT CAPITAL MARKET MARKETS BOND ISSUE INTERNATIONAL DEVELOPMENT FREE BOND DEFAULT PAYMENT COUPON BONDS GUARANTEE PAYMENTS DEBT SERVICE RATING AGENCIES POTENTIAL INVESTORS TYPES OF INSTRUMENTS INVESTORS YIELD CURVES PRINCIPAL PAYMENTS BANK GUARANTEES FUTURE VALUE BANK CREDIT YIELD TO MATURITY REPAYMENT AMORTIZATION PAYMENT OF INTEREST ISSUANCE REMAINING DEBT SHARES FACE VALUE DEFAULT MARKET CREDIT RATING BOND MATURITY TREASURY EVENT OF DEFAULT TIME OF DEFAULT CREDIT RISK DISCOUNT RATES SECURITY BOND RISK SHARE COUPON BONDHOLDERS CHECK BANK GUARANTEE INSTRUMENT DEBT SERVICE PAYMENT GUARANTEE RECOVERY RATE CASH FLOW The absence of sovereign bond issuances with World Bank guarantee support for almost 15 years and the customized application of the WB guarantee instrument led potential investors in the Ghana bond to ponder the best way to value the instrument. This paper provides guidance on this subject by presenting four ways to assess the value of a World Bank guarantee for debt capital market issues. The methodologies presented are: nominal weighted average yield; rolling nominal weighted average yield; discounted cash flow; and recovery analysis. The paper presents the methodologies by applying them to a fictional bond issuance by the government of Emergistan, a fictional low income country. Background information on the country and bond issuance has been kept to the minimum as the sole purpose of this example is to illustrate the results of each of the methodologies. It should be noted that World Bank guarantees can be structured in a number of ways depending on the issuer’s objectives as well as country and market circumstances. For instance, guarantees could cover interest and/or principal payments of bonds. Coverage could be on a first loss or back-ended basis. Therefore, the most appropriate valuation method would depend on the specific features of the guarantee being considered. 2016-02-25T21:55:10Z 2016-02-25T21:55:10Z 2016-02 Working Paper http://documents.worldbank.org/curated/en/2016/02/25918942/pricing-partially-guaranteed-bonds-main-report http://hdl.handle.net/10986/23758 English en_US Financial Solutions Occassional Paper;No. 001/16 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research :: Working Paper Publications & Research
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English en_US
topic	CAPITAL MARKETS BASIS POINTS FINANCING DEFAULTS PAYMENT OBLIGATIONS PRINCIPAL VALUATION INCOME INTEREST GUARANTEES MATURITY DATE TREASURY BOND DISCOUNTED CASH FLOW DISCOUNT RATE ISSUANCES TREASURIES LIQUIDITY VALUATION METHOD CREDIT RATING AGENCIES TOTAL DEBT BONDS EQUAL SHARE DISCOUNT PROBABILITY OF DEFAULT LIQUIDITY PREMIUM PRICE PRINCIPAL PAYMENT PARTIAL GUARANTEE PAYMENTS INTERNATIONAL BANK CASH FLOWS DEBT CAPITAL INSTRUMENTS PAYMENT DEFAULT MATURITY BOND ISSUANCES PRESENT VALUE BULLET MATURITY BOND BOND ISSUES TREASURY YIELD BOND YIELD PAYMENT OF PRINCIPAL BOND ISSUANCE TRADING MARKET INSTRUMENT SOVEREIGN BOND PAYMENT DEBT CAPITAL MARKET MARKETS BOND ISSUE INTERNATIONAL DEVELOPMENT FREE BOND DEFAULT PAYMENT COUPON BONDS GUARANTEE PAYMENTS DEBT SERVICE RATING AGENCIES POTENTIAL INVESTORS TYPES OF INSTRUMENTS INVESTORS YIELD CURVES PRINCIPAL PAYMENTS BANK GUARANTEES FUTURE VALUE BANK CREDIT YIELD TO MATURITY REPAYMENT AMORTIZATION PAYMENT OF INTEREST ISSUANCE REMAINING DEBT SHARES FACE VALUE DEFAULT MARKET CREDIT RATING BOND MATURITY TREASURY EVENT OF DEFAULT TIME OF DEFAULT CREDIT RISK DISCOUNT RATES SECURITY BOND RISK SHARE COUPON BONDHOLDERS CHECK BANK GUARANTEE INSTRUMENT DEBT SERVICE PAYMENT GUARANTEE RECOVERY RATE CASH FLOW
spellingShingle	CAPITAL MARKETS BASIS POINTS FINANCING DEFAULTS PAYMENT OBLIGATIONS PRINCIPAL VALUATION INCOME INTEREST GUARANTEES MATURITY DATE TREASURY BOND DISCOUNTED CASH FLOW DISCOUNT RATE ISSUANCES TREASURIES LIQUIDITY VALUATION METHOD CREDIT RATING AGENCIES TOTAL DEBT BONDS EQUAL SHARE DISCOUNT PROBABILITY OF DEFAULT LIQUIDITY PREMIUM PRICE PRINCIPAL PAYMENT PARTIAL GUARANTEE PAYMENTS INTERNATIONAL BANK CASH FLOWS DEBT CAPITAL INSTRUMENTS PAYMENT DEFAULT MATURITY BOND ISSUANCES PRESENT VALUE BULLET MATURITY BOND BOND ISSUES TREASURY YIELD BOND YIELD PAYMENT OF PRINCIPAL BOND ISSUANCE TRADING MARKET INSTRUMENT SOVEREIGN BOND PAYMENT DEBT CAPITAL MARKET MARKETS BOND ISSUE INTERNATIONAL DEVELOPMENT FREE BOND DEFAULT PAYMENT COUPON BONDS GUARANTEE PAYMENTS DEBT SERVICE RATING AGENCIES POTENTIAL INVESTORS TYPES OF INSTRUMENTS INVESTORS YIELD CURVES PRINCIPAL PAYMENTS BANK GUARANTEES FUTURE VALUE BANK CREDIT YIELD TO MATURITY REPAYMENT AMORTIZATION PAYMENT OF INTEREST ISSUANCE REMAINING DEBT SHARES FACE VALUE DEFAULT MARKET CREDIT RATING BOND MATURITY TREASURY EVENT OF DEFAULT TIME OF DEFAULT CREDIT RISK DISCOUNT RATES SECURITY BOND RISK SHARE COUPON BONDHOLDERS CHECK BANK GUARANTEE INSTRUMENT DEBT SERVICE PAYMENT GUARANTEE RECOVERY RATE CASH FLOW Launay, Vincent Pricing Partially Guaranteed Bonds : Valuation of Bonds Benefitting from a World Bank Partial Guarantee
relation	Financial Solutions Occassional Paper;No. 001/16
description	The absence of sovereign bond issuances with World Bank guarantee support for almost 15 years and the customized application of the WB guarantee instrument led potential investors in the Ghana bond to ponder the best way to value the instrument. This paper provides guidance on this subject by presenting four ways to assess the value of a World Bank guarantee for debt capital market issues. The methodologies presented are: nominal weighted average yield; rolling nominal weighted average yield; discounted cash flow; and recovery analysis. The paper presents the methodologies by applying them to a fictional bond issuance by the government of Emergistan, a fictional low income country. Background information on the country and bond issuance has been kept to the minimum as the sole purpose of this example is to illustrate the results of each of the methodologies. It should be noted that World Bank guarantees can be structured in a number of ways depending on the issuer’s objectives as well as country and market circumstances. For instance, guarantees could cover interest and/or principal payments of bonds. Coverage could be on a first loss or back-ended basis. Therefore, the most appropriate valuation method would depend on the specific features of the guarantee being considered.
format	Working Paper
author	Launay, Vincent
author_facet	Launay, Vincent
author_sort	Launay, Vincent
title	Pricing Partially Guaranteed Bonds : Valuation of Bonds Benefitting from a World Bank Partial Guarantee
title_short	Pricing Partially Guaranteed Bonds : Valuation of Bonds Benefitting from a World Bank Partial Guarantee
title_full	Pricing Partially Guaranteed Bonds : Valuation of Bonds Benefitting from a World Bank Partial Guarantee
title_fullStr	Pricing Partially Guaranteed Bonds : Valuation of Bonds Benefitting from a World Bank Partial Guarantee
title_full_unstemmed	Pricing Partially Guaranteed Bonds : Valuation of Bonds Benefitting from a World Bank Partial Guarantee
title_sort	pricing partially guaranteed bonds : valuation of bonds benefitting from a world bank partial guarantee
publisher	World Bank, Washington, DC
publishDate	2016
url	http://documents.worldbank.org/curated/en/2016/02/25918942/pricing-partially-guaranteed-bonds-main-report http://hdl.handle.net/10986/23758
_version_	1764454871848714240

Pricing Partially Guaranteed Bonds : Valuation of Bonds Benefitting from a World Bank Partial Guarantee

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