As the demand for funding increases, corporate entities have begun exploring new financial markets. Most companies are ready to explore debt financing options to raise capital. Some companies entrust investment banks and specialist advisory firms to issue/buy debt securities on their behalf.
Investment banks and advisory firms also invest in debt securities as part of their business plans. A DCM (Debt Capital Market) is becoming a secure place for issuers to raise funds by selling debt securities. Similarly, investors can enjoy high returns after buying securities from debt capital markets. For better results, issuers and investors look for third-party support services.
Read on to understand the advantages of DCM services for issuers and investors.
Understanding the Basics of a DCM
A DCM is a marketplace where companies can issue debt securities to raise funds. Raising funds in a DCM is much better than seeking loans from traditional banks. With the help of debt capital markets, corporate entities can accumulate more funds than they would from bank loans. In addition, a debt capital market will help issuers secure funds from investors worldwide without any geographical constraints.
Various debt securities are available in DCMs, like preferred stocks, convertible bonds, commercial papers, and CDs (Certificates of Deposit). Mortgage-backed Securities (MBS) are also available for investors in DCMs. Besides corporate entities, government organizations use debt capital markets to raise funds.
DCMs help establish creditor relationships between issuers and investors. Investors buy debt securities and provide issues with capital. On the other hand, issuers offer interest to investors at frequent intervals throughout the debt tenure. DCMs offer flexibility to investors and issuers, which might not be available in other financial markets.
Operating in debt capital markets is complex. For the same rationale, issuers and investors seek external support to make the right decisions. Issuers can sell flexible debt securities that help them accumulate a pool of capital with external support. Similarly, investors can gain access to different debt capital markets with the help of a third-party firm.
Understanding the Pros of DCM Services for Issuers and Investors
DCM services are offered by issuing debt securities to corporate and government entities seeking capital. The services are also offered to investors looking to explore debt capital markets and earn high returns by buying debt securities. DCM support services include pitch book support, peer group analysis, order book analysis, and ESG sector analysis.
Below is how investors and issuers benefit from DCM support services:
Affordable Financing Options
Issuers can find affordable funding options in debt capital markets. A reliable firm like Acuity Knowledge Partners can help issuers find financing options with less interest. When an organization’s credit rating is good, investors are ready to provide funds at a low interest. Unlike traditional bank loans, interest might be lower in debt capital markets.
Diversification of Capital Funding
Corporate and government entities do not have to only rely on traditional bank loans for funding. With the help of DCM support services, issuers can diversify their funding sources, thus reducing the overall credit risk. There is no need to rely solely on traditional bank loans or other means of funding, which is expensive.
Choosing the Right Debt Structure
With the help of DCM services, issuers can choose the right debt structure. A reliable third-party firm will help issuers choose the right security type, maturity date, and payable interest. Issuers can customize the debt structure to meet funding needs without putting their assets at risk.
Increased Liquidity
Investors often search for liquid assets, easily saleable, in financial markets. With the help of DCM support services, investors can find liquid debt securities and minimize risks. Compared to traditional securities, debt securities are far more liquid.
Enhanced Risk Management
Every investment comes with some risks. The same applies to debt capital markets. With the help of reputed third-party firms, investors can manage the risks associated with debt securities. Risk tolerance levels generally determine the investments made in debt capital markets.
Conclusion
DCM services can help issuers and investors meet their goals. Issuers can find better funding options, whereas investors can mitigate risks and earn high returns. Connect with Acuity Knowledge Partners for DCM support services right away!