9th Oct

Questions and Answers

What is the credit rating of the company?

While ratings agencies do get things wrong - witness their confidence in sub-prime lending right up until it blew up into the global banking crisis - a rating does indicate that there has been due diligence on the company and its finances. As a rule of thumb, the higher the credit rating, the lower the interest rate the bonds will have.

What if there is no credit rating?

Some companies do not think it is worth paying a company to rate their debt - ratings are expensive and only really worth it if there are a lot of lenders demanding it - but will instead offer particular covenants, for example that profits will always be above a minimum multiple of interest payments or that gearing - debt as a proportion of net assets - will be below a particular level. In that case, you should judge whether these give an adequate level of protection and how much the company has met them in the past.

How does the interest rate compare with similar issues?

What are companies in the same industry paying? What rates are available on issues with the same credit rating? If you can get better rates elsewhere, or the same rate from a company with a higher rating, then they are likely to be preferable to investing in a new issue.

Do you intend to hold the bonds to maturity?

If you plan to keep the bonds for their full term, the interest rate is the key thing to consider as you will get all your investment back, assuming the company has not gone bust or defaulted on its debts, on the due date.

Should you buy on issue or in the secondary market?

The price of bonds will fluctuate according to investor demand, current and expected interest and inflation rates. If you plan to hold the bond until maturity, the trading price will be irrelevant and, by buying on launch, you will know the return you will get. More active investors may prefer to buy and sell in the aftermarket as prices fluctuate.

What is the outlook for interest rates?

If economists start to predict a rise in interest rates, the interest rate on any bonds you own could start to look less attractive. That could mean their price falls: if they fall below the redemption price, you could suffer a capital loss if you have to sell.

(First Published in Money Observer 09/12)

Phillipa Kilby

Posted on 23/10/2012 08:16:11

How much does the broker usually take? Could I purchase my Bonds direct from a reputable Company, to cut out the broker fees?


Posted on 05/07/2013 16:20:16

Hi. Have some money to invest. Recently bought some bonds (on line) in Jockey club. I want to invest in retail bonds. Why do I need a broker. Any help gratefully received. Total investment only £20,000. Both current options at 5.5% and 6% look good - Thanks

Mr Bond

Posted on 06/07/2013 12:55:08

Dear Rob

The primary function of a broker in this instance is to provide custody which it would normally do in a pooled nominee account; all holdings in a particular investment are effectively lumped together, with a portion identified as being held on your behalf.

As with any investment, it is important to ensure that you understand the nature of any risk that you may be exposed to, and that you take advice according to your level of experience and requirements.

Most retail bond issuers appoint brokers that can offer discretionary, advisory or execution only services, and it would be wise to explore the options that exist, and the charges that each would incur; longer-dated bonds can be held within tax-efficient self-select ISA accounts as well as general investment accounts.

A key difference between the bonds you are considering and the Jockey Club 'loyalty bond' is the fact that they can be traded on the secondary market on the LSE's ORB exchange, and you are thereby able to place instructions to sell your holding at any time between issue and maturity via your chosen broker.

There is plenty of information available on, and a little time invested may answer a number of questions for you.

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