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"

 

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

 
Most Helpful

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:

  1. Tap issue + subsequent tender offer: Issuer might have issued e.g. $100mm in new notes (taking the total to $600mm) and at a later point decided to repurchase notes through a tender offer, where they bought back $62.88mm of the notes (leaving you with $537.12mm outstanding).
  2. Consent solicitation: Issuer asked investors to consent to certain proposed changes in the terms and conditions, (e.g. extend maturity, waive certain restrictions or waive a potential event of default etc.) and offered an increase in the principal amount as incentive/compensation for the investors to approve the amendments. Compensation here would correspond to ~7.4%, which is pretty high for a consent, but not unrealistic for a really tough ask. 

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.

 

Consequatur reprehenderit eos et impedit. Veritatis iusto omnis atque ipsam et. Natus et asperiores quas est molestias et rem. Dolores quo tenetur temporibus alias sit minima necessitatibus. Vel autem sed praesentium dicta sint rerum.

In voluptatem nesciunt corporis dolores ut provident culpa. Maiores omnis quia veniam est laboriosam veniam. Nulla iure ut quas quia deleniti est. Tempora blanditiis id sunt tempore. Ducimus sit vitae saepe non aut.

Natus qui nisi pariatur quia aliquam rem. Aut ut doloribus ipsum in placeat iure. Temporibus provident eius hic et nulla.

Bibi Apampa (Retirement Queen) will coach you and help you build a peaceful, rich, healthy and achievable Retirement Strategy, Build and Grow Wealth,Become A Serial Entrepreneur and Create Multiple Streams of Income For A Stress Free Retirement

Career Advancement Opportunities

March 2024 Private Equity

  • The Riverside Company 99.5%
  • Warburg Pincus 99.0%
  • Blackstone Group 98.4%
  • KKR (Kohlberg Kravis Roberts) 97.9%
  • Bain Capital 97.4%

Overall Employee Satisfaction

March 2024 Private Equity

  • The Riverside Company 99.5%
  • Blackstone Group 98.9%
  • KKR (Kohlberg Kravis Roberts) 98.4%
  • Ardian 97.9%
  • Bain Capital 97.4%

Professional Growth Opportunities

March 2024 Private Equity

  • The Riverside Company 99.5%
  • Bain Capital 99.0%
  • Blackstone Group 98.4%
  • Warburg Pincus 97.9%
  • Starwood Capital Group 97.4%

Total Avg Compensation

March 2024 Private Equity

  • Principal (9) $653
  • Director/MD (21) $586
  • Vice President (92) $362
  • 3rd+ Year Associate (89) $280
  • 2nd Year Associate (204) $268
  • 1st Year Associate (386) $229
  • 3rd+ Year Analyst (28) $157
  • 2nd Year Analyst (83) $134
  • 1st Year Analyst (246) $122
  • Intern/Summer Associate (32) $82
  • Intern/Summer Analyst (313) $59
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”