How can a Principal of a Bond Increase?
A company I'm looking at issued senior unsecured notes with a principal face value of $500mm. The principal face value recorded on its filings is $500mm. However, Bloomberg shows the principal amount of this issuance to be $537.12mm. Outside of a PIK feature (which this note doesn't have), is there a technical reason why the face value of a bond would increase?
The coupon is fix. If the credit worthiness of the business increases (and thus the likelihood I'm getting my money back + interest), then I'd be willing to pay more for that stream of income. This is also how you can buy debt for "pennies on the dollar"
That would affect the price not the face
Not sure of the specific situation here and not from a LevFin background so also not sure how frequently this occurs in real life, but just thinking through a scenario where this might be the case - perhaps the bond was issued at a premium to par and you’re seeing the total value of the bond including unamortized premium on Bloomberg
Maybe it's the accrued coupon?
As you've probably heard of OID, there's also OIP: original issue premium. It's possible some bonds are issued at a premium to par (above 100) therefore dampening yield relative to coupon.
If it's not issuance, the trading price might also be higher itself.
Apart from PIK interest, as you mentioned, another common way to increase the principal amount would be via a tap issue. Following the original issuance, the issuer would simply issue additional notes under the same framework and thus increase the total principal amount of the notes. However, in this case I don't think that a tap issue is likely to be the case (at least on its own), given the relatively odd principal amount of notes that you have outstanding. You would typically do a tap issue in more even increments (such as $25mm, $100mm etc.), but it is technically possible to $37.12mm.
Other possible explanations for the increase in principal amount:
Without knowing the specific details of the notes its quite hard to pinpoint the real reason for the increase in principal. We can probably figure it out, if you can share the ISIN code (feel free to send a PM, if you are more comfortable with that).
Furthermore, when we talking about original issue discount (or in rare cases premium) it will not have any impact on the notes' principal amount. Instead, this relates to the price of the notes at issuance. If an issuer offers a 5% OID, investors will only pay 95% cash to purchase the notes in the new issue, but they will receive 100% (i.e. the principal amount) at maturity. It's the same concept that applies to the trading price when buying in the secondary market. E.g. if an investor buys at a cash price of 103% in the market, he will still receive the principal amount of 100% at maturity.
Good answers above, but first I would recommend cross-checking Bloomberg’s methodology with the indenture. Could be as simple as Bloomberg showing you the market value of a bond trading at premium, not face value.
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