Transaction structure for issuing inflation-linked securities
View Patent ↗Transaction structures for issuing inflation-linked securities are disclosed. According to various embodiments, the transaction structure includes an entity purchasing fixed income securities issued by an issuer. The fixed income securities may have been previously issued by the issuer as part of a single, previous offering by the issuer or they could be newly issued by the issuer to the entity. The method also includes the entity and a swap counterparty entering into an inflation swap agreement. The inflation swap agreement obligates the entity to make periodic fixed payments to the swap counterparty in exchange for periodic floating payments from the swap counterparty dependent upon an inflation index, such as the Consumer Price Index (CPI). The method further comprises issuing, by the entity, inflation-linked securities to investors. The inflation-linked securities, which may be bonds, may have a principal amount and/or an interest rate that is indexed to the inflation index.
1. A method, comprising:
determining, using a computer, for each of at least one private issuer of fixed income securities, a correlation between inflation and a likelihood that the private issuer will default on the fixed income securities, wherein the computer comprises a processor and a memory;
selecting one of the at least one private issuer based on the correlation determined for each of the at least one private issuer;
purchasing, by a trustee on behalf of a trust, fixed income securities issued by the selected private issuer, wherein the fixed income securities have a first maturity date;
entering into, by the trustee on behalf of the trust, an inflation swap agreement with a swap counterparty, wherein the inflation swap agreement obligates the trust to make periodic fixed payments to the swap counterparty in exchange for periodic floating payments from the swap counterparty dependent upon an inflation index; and
issuing, by the trustee on behalf of the trust, inflation-linked securities to investors, wherein the inflation- linked securities comprise a principal amount and an interest rate, and wherein at least one of the principal amount and the interest rate are related to the inflation index, wherein the inflation-linked securities have a second maturity date that matches the first maturity date of the fixed income securities, and wherein the inflation-linked securities are backed by the fixed income securities of the selected private issuer so that the investors can own inflation-linked securities backed by fixed income securities of the selected private issuer, without the selected private issuer having to issue the inflation-linked securities.
2. The method of claim 1 , wherein the trust is a limited liability company.
3. The method of claim 1 , wherein the trust is a special purpose vehicle.
4. The method of claim 1 , wherein the fixed income securities purchased by the trust were previously issued by the selected private issuer as part of a single, previous offering by the selected private issuer.
5. The method of claim 1 , wherein the fixed income securities purchased by the trust are directly purchased from the selected private issuer by the trust.
6. The method of claim 1 , wherein the end of the term of the inflation swap agreement corresponds to the first maturity date of the fixed income securities.
7. The method of claim 1 , wherein an interest rate on the inflation-linked securities issued by the trust is related to the rate on the floating payments paid by the swap counterparty to the trust pursuant to the inflation swap agreement.
8. The method of claim 1 , wherein an interest rate on the periodic fixed payments paid to the swap counterparty by the trust pursuant to the inflation swap agreement is related to the coupon rate on the fixed-income securities purchased by the trust.