01 Β· Foundations
What DCM is
DCM stands for Debt Capital Markets. The desk helps companies and governments raise money by issuing bonds and similar debt instruments to investors. The other side of the same group, LevFin (Leveraged Finance), focuses on debt for highly indebted companies, typically private-equity-owned. Together they cover the full credit spectrum from the safest government bonds to the riskiest leveraged loans.
Debt vs equity: the issuer's view
When a company needs capital, it has two basic choices. Issue equity (sell new shares, the ECM Bible covers this) or issue debt (borrow money it promises to pay back).
Debt
A promise to repay a fixed amount on a fixed date, plus periodic interest (the coupon).
- No dilution. Existing shareholders keep 100% of the company.
- Tax-deductible interest. Coupons reduce taxable profit, lowering the effective cost.
- Cheaper than equity. Lenders take less risk than shareholders so demand a lower return.
- Must be repaid. Missing a coupon or principal payment is a default and can trigger insolvency.
- Covenants restrict the company. Bondholders impose rules on what the company can and cannot do while the debt is outstanding.
Equity
Permanent capital from shareholders, no repayment obligation, no fixed return.
- No fixed payments. Dividends are discretionary; the company can skip them.
- No maturity. The capital never has to be repaid.
- Strengthens the balance sheet and improves credit ratios.
- Dilutes ownership and control. New shares mean existing holders own a smaller slice.
- Expensive. Shareholders demand higher returns than lenders because they sit at the bottom of the capital stack.
Bond vocabulary in plain English
A handful of terms come up on every DCM deal. Get these straight before going further.
Nominal / face value / principal
The amount the issuer borrows per bond and promises to repay at maturity. A standard Swiss CHF bond is issued in CHF 5,000 pieces for retail or CHF 100,000+ for institutional investors.
Coupon
The interest the issuer pays bondholders. This is the issuer's interest cost. Quoted as an annual percentage of nominal: a 2% coupon on a CHF 100m bond means CHF 2m of interest per year, usually paid annually for Swiss CHF bonds and semi-annually for international bonds.
Maturity
The date the issuer repays the principal. Swiss CHF bonds typically run 3 to 15 years; perpetuals (no fixed maturity) exist for bank regulatory capital.
Par
Par is 100% of face value, the bond's reference price. A bond trades above par (e.g. 102%) when its fixed coupon looks generous versus current rates, and below par (e.g. 98%) when it looks low. New bonds are usually issued at or near par.
Yield (and yield to maturity)
The total return an investor earns holding the bond to maturity, called the yield to maturity (YTM). It blends the coupon with any gain or loss from buying above or below par, so it differs from the coupon whenever the price is not exactly par. Yields move with interest rates and the issuer's credit risk.
Spread
The extra yield a bond pays over a risk-free benchmark, the reward for taking more risk than the safest borrower. Quoted in basis points (1 bp = 0.01%). A 5-year Swiss corporate bond at "+120 bps over swaps" pays 1.2% a year more than the 5-year swap rate.
Swap rate
A widely used benchmark interest rate for a given maturity and currency, taken from the interest-rate swap market (where parties exchange a fixed rate for a floating one). Bankers quote corporate bond spreads "over swaps" because the swap curve is a clean, liquid reference close to risk-free.
Secured vs unsecured
Secured debt is backed by specific assets (collateral) the lender can seize if the borrower defaults. Unsecured debt has no such backing, only the borrower's general promise to pay. Secured ranks ahead of unsecured if things go wrong, so it is cheaper for the issuer.
Senior vs junior
The order in which lenders get paid back in a default. Senior debt is repaid first; junior (subordinated) debt only after senior is made whole. The further down this queue you sit, the more risk you take, so the higher the return you demand.
Primary vs secondary market
The primary market is the initial issue: the issuer sells new bonds to the first investors and receives the cash. The secondary market is investors trading those bonds among themselves afterwards; the issuer is not involved and gets no further money. "Liquidity" describes how easily a bond trades in the secondary market.
Credit rating
An independent assessment of how likely the issuer is to repay, from Standard & Poor's, Moody's and Fitch, on a scale from AAA (safest) to D (default). The split between "investment grade" (BBB- and above) and "speculative" or "high yield" (BB+ and below) sets the structural division between IG DCM and LevFin.
The credit rating split
Investment grade (BBB- / Baa3 and above) means the issuer is judged able to meet its obligations through a normal business cycle. Almost all large listed Swiss corporates (NestlΓ©, Novartis, Roche, ABB, Swisscom, Zurich Insurance) are investment grade. High yield / speculative (BB+ / Ba1 and below) means there is meaningful default risk. Most private-equity-owned companies and highly levered firms sit here. The two markets use different documentation, different investors, and different bankers. They are covered separately in sections 5 and 6.
You've seen how an IG bond comes together
The full DCM/LevFin Bible continues with investment-grade execution, the LevFin capital stack, ratings, covenants, Swiss withholding tax and 14 things bankers watch.
The Swiss bond market specifics, FinSA prospectus and documentation, the IG bond process and timeline, pricing benchmarks, the full Leveraged Finance capital stack (TLA, TLB, RCF, second lien, mezz, HY bonds), the Highly Confident Letter, covenant types, ratings (S&P, Moody's, Fitch), the Swiss withholding tax and 10/20 non-bank rule, plus the accordion of 14 things bankers watch.
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Step 01 Β· Swiss bond market specifics
The Swiss bond market in numbers
The Swiss bond market is one of the largest and oldest in Europe relative to the size of the country. Roughly 2,200 bonds are listed on SIX Swiss Exchange, of which about two thirds are issued by Swiss domestic issuers and one third by foreign issuers from around 40 countries. Around 600 international bonds are admitted to trading without being formally listed.[1]
SIX bond listing requirements
Listing rules for bonds are far lighter than for equity. The main constraints:
1
Minimum nominal value
The aggregate nominal value of a bond issue must be at least CHF 20 million (or equivalent in another currency). This is the floor below which a bond cannot be listed.[4]
2
Track record / issuer status
The issuer must publish annual financial statements. No minimum operating-history requirement (unlike the 3-year track record for equity).
3
Recognised Representative
A Swiss bank or securities dealer must file the listing application via the SIX CONNEXOR web platform. Provisional admission to trading can begin just 3 trading days after receipt of the electronic application.[4]
4
Currencies
Bonds can be listed in any major world currency, not just CHF. EUR, USD, GBP and JPY are all common.
The Swiss "ex-post" approval advantage
Switzerland has a genuine competitive advantage on speed. For equity, the prospectus must be approved by the reviewing body before publication. For straight bonds, FinSA allows ex-post approval: the issuer can publish the prospectus and launch the deal first, then file with the reviewing body afterwards. The condition is that a Swiss bank or securities dealer confirms all material information was available at the time of publication. As a result, a Swiss bank is almost always part of any Swiss public bond offering.[2] Provisional admission to trading on SIX can start 3 trading days after the electronic listing application, with up to 2 months to lodge the formal listing application afterwards.[4]
Issue sizes in practice
Swiss CHF bond sizes are smaller than EUR or USD deals because the local investor base is narrower. Average Swiss bond issue size sits at roughly CHF 200 to 250 million, though large issuers print bigger.[4] The record on the Swiss CHF bond market for a single industrial issuer was set by Georg Fischer (GF) at CHF 650 million, raised in two tranches to repay loans and finance the Uponor acquisition.[6]
SBI: the Swiss Bond Index
The Swiss Bond Index (SBI) is the reference index for the CHF bond market, calculated by SIX. To be eligible for SBI inclusion, a bond must have a remaining maturity of at least 1 year, an issuance volume of at least CHF 100 million, a fixed rate, and a composite rating of BBB or higher.[7] Sub-indices break down by issuer origin, sector, rating and maturity. Most Swiss institutional bond portfolios are benchmarked against the SBI or one of its sub-indices.
Step 02 Β· Prospectus & documentation
The bond prospectus
FinSA harmonised the prospectus regime for both equity and debt in 2020. A bond prospectus is shorter than an IPO prospectus but the document set still covers issuer, securities, terms and risks. The structure follows the FinSA prospectus schedules.[3]
Key sections of a bond prospectus
Issuer profile
Description of the issuer, its business, board, management, recent financial performance, and any material risks. For a repeat issuer this section is essentially a refresh of last year's prospectus.
Terms and conditions of the bonds
The contractual heart of the document. Nominal, coupon, payment dates, maturity, redemption mechanics, governing law, jurisdiction, paying agent.
Use of proceeds
What the issuer plans to do with the money: refinance existing debt, fund an acquisition, general corporate purposes, ESG-eligible projects (for green or sustainability-linked bonds).
Risk factors
The risks that could impair the issuer's ability to pay. Sector-specific risks plus financial structure risks. Drafted by counsel, reviewed by everyone.
Tax
The Swiss WHT treatment is the single most important tax section. See section 07 of this Bible for the 10/20 non-bank rule mechanics.
Subscription, sale and offering restrictions
Which jurisdictions the bond is being offered into and the selling restrictions for each. US Rule 144A / Reg S, EU MIFID II target market, UK PRIIPs.
What a bond's key terms look like: an annotated term sheet
Before the full prospectus is written, the structure is captured in a short term sheet: a one-page summary of the bond's commercial terms. Below is a simplified example for a plain vanilla Swiss CHF bond (an ordinary fixed-coupon bond with no special features), with each line explained in plain English. The numbers are illustrative.
Example AG Β· CHF Senior Bond Β· indicative term sheet
Illustrative only. A real term sheet adds paying-agent, settlement and selling-restriction detail.
IssuerExample AG (Switzerland)
The company borrowing the money and promising to pay it back.
Status / rankingSenior unsecured
Where this bond sits in the repayment queue. Senior means it is paid early; unsecured means no specific assets are pledged behind it.
Aggregate nominalCHF 200,000,000
The total size of the bond: the amount raised now and repaid at the end.
Coupon2.00% per annum, paid annually
The yearly interest. Here CHF 4m a year on a CHF 200m bond. "Per annum" means per year.
Issue price100% (par)
What investors pay at the start, as a percentage of face value. 100% means par, the standard reference price.
Maturity15 June 2032 (7 years)
The day the issuer repays the full principal and the bond ends.
Redemption100% at maturity (bullet)
How the principal is repaid. Bullet means the whole amount in one go at the end, with nothing paid down before. The alternative, amortising, would repay it gradually over the bond's life.
Early redemptionIssuer call from 3 months before maturity; tax call
Whether the issuer can repay early (to "call" the bond). Here only near the very end, plus a standard option to repay early if tax rules change.
DenominationCHF 5,000
The smallest tradeable piece: the minimum an investor can buy or hold.
ListingSIX Swiss Exchange
Where the bond is listed so it can be traded between investors after issue.
Governing lawSwiss law
Which country's law the contract follows if there is ever a dispute.
Use of proceedsRefinancing of existing debt
What the issuer will do with the money raised.
The Key Investor Information Document (KIID)
For some retail-targeted debt, FinSA also requires a Key Investor Information Document (KIID): a short, standardised summary of the security, its risks and its costs. Why have it on top of the prospectus? The two do different jobs. The prospectus is the long, full legal document (often 100+ pages). The KIID is a few pages written to a fixed template so a non-expert can grasp the key risks and compare products side by side, without reading the whole prospectus. The exception that matters most in Swiss DCM practice: plain vanilla bonds (ordinary fixed-coupon bonds with no special features) offered to retail are exempt from the KIID requirement. Structured products and bonds with derivative-like features are not.[3]
EMTN programmes
Frequent issuers (Swisscom, Roche, NestlΓ©, big Swiss banks) issue under a Euro Medium Term Note (EMTN) programme: a master prospectus filed once a year covering many future bond issuances. Each new bond is launched under the same EMTN programme via short "Final Terms" instead of a fresh full prospectus. The time-to-market savings are enormous: a Swisscom bond can be launched, priced and settled in a matter of days under an EMTN programme.[8]
Step 03 Β· Timeline & execution
How an IG bond gets done, day by day
For an IG bond by a repeat Swiss issuer, the full process from "go" to settlement can run in 1 to 4 weeks. A first-time issuer takes longer because of the rating process and the initial prospectus drafting.
Typical timeline for a repeat IG issuer
Hover or tap a phase. Durations are market ranges, not rules.
Typical duration: 1 to 4 weeks from "go" to settlement
Day -10 to -3
Preparation
Kick-off, prospectus refresh or EMTN drawdown, management & auditor DD, rating refresh. Term sheet drafted (size, maturity, fixed vs floating).
Day -2 to -1
Investor engagement
Short investor call or one-day presentation for non-vanilla deals. Plain vanilla bonds often skip this.
Day 0, morning
Launch & bookbuild
Announcement with Initial Price Thoughts (e.g. swaps +110 bps area). Book opens, usually closes in 2 to 4 hours.
Day 0, afternoon
Pricing & allocation
Final terms set from demand: tighten the spread if oversubscribed, possibly upsize. Allocations sent out.
Day +3 to +5
Settlement
T+3 or T+5 settlement on SIX, bonds delivered against cash. Provisional trading from T+3.
Day +5 onwards
Listing formalisation
Formal SIX listing application completed within 2 months; bond trades on the official SIX bond market.
Underwriting: soft vs firm
Underwriting is the bank's promise to make sure the bond gets sold. There are two versions. Under soft underwriting, the standard in Swiss bonds, the bank does not promise the money up front. It markets the deal, builds the order book, and only locks in price and size once it can see there is enough real demand to cover the bond. Because the commitment happens at that final moment, the bank does not end up holding bonds nobody wanted.
So what if demand is weak? The bank does not quietly eat the unsold paper. It does one of three things before committing: offer more yield to pull investors in (re-price wider), cut the deal size to match the demand that exists, or, in a bad market, pull the deal and try again later. The value the bank still adds is the whole machine around the sale: judging the right level, reaching the investors, running the book and getting to a price that clears.
Under firm underwriting, the bank instead buys the entire bond itself at an agreed price and then resells it, carrying the risk if the market moves against it. It is the exception, used mainly when the issuer needs absolute certainty of funds on a specific date.[9]
Step 04 Β· Pricing
How a bond gets priced
Bond pricing has two layers: the benchmark (the underlying risk-free rate) and the credit spread (the extra the issuer pays for being riskier than the benchmark). The sum is the yield the investor earns; the coupon is set at that level.
The pricing components
1
Benchmark rate
The risk-free curve in the currency of issuance. CHF bonds: Swiss government bonds (Eidgenossen) or the CHF swap rate. EUR bonds: German Bunds or the EUR swap curve. USD bonds: US Treasuries.
2
Credit spread
The premium the issuer pays over the benchmark to compensate investors for credit risk. Set by reference to where the issuer's existing bonds trade (the "curve") and where comparable issuers price.
3
New Issue Concession (NIC)
A little extra yield (a few more basis points) the issuer pays on a brand-new bond, on top of where its existing bonds already trade, to give buyers a reason to choose the new one. "New" means any newly issued bond, not just a first-time issuer. The NIC is smaller in a strong market (tighter), larger in a weak one (wider), and often runs 5 to 15 bps for an IG bond.
How the order book sets the final spread
How do the banks reach enough investors to close a bond in a single morning? They do not start from scratch. Each bank in the syndicate has a debt syndicate and sales desk that covers the same pool of bond buyers (pension funds, insurers, asset managers) every week. The moment the deal is announced, those desks contact their investors in parallel by phone and over messaging and order systems (Bloomberg and dedicated bookbuilding platforms). Investors place orders into a shared "book", and the banks watch demand build in real time.
The bookrunners open the book with "Initial Price Thoughts" deliberately set wider (more generous to investors) than where they expect to land, to leave room to tighten. As orders pile in, they progressively tighten the spread, asking investors to accept less yield. The final spread is set where the book is comfortably covered and the order quality (the names and sizes of the investors) is satisfactory.
Plain English: "tighten the spread" and "swaps +110 bps area"
Spread is the extra yield over the benchmark. To tighten the spread means to lower it (less yield for investors, cheaper funding for the issuer); to widen it means the opposite. Demand tightens spreads, weakness widens them.
"5-year benchmark at swaps +110 bps area" is the banker's shorthand for a starting price: a 5-year bond yielding roughly 1.10% a year more than the 5-year swap rate (the benchmark). If the 5-year swap rate were 1.0%, that is about a 2.1% yield. "Area" signals it is an opening indication, not the final number.
The book-building shorthand: IPT, guidance, launch, final
Bookbuild communication runs in four steps. Initial Price Thoughts (IPT): where the bookrunners ask investors to look at. Price guidance: tightened once early demand is visible. Launch: deal size announced and book "covered". Final terms: the spread and coupon are locked. The whole sequence on a Swiss IG bond often takes under 4 hours.
06 Β· Leveraged Finance
How LevFin works in practice
LevFin is the financing side of leveraged buyouts (LBOs), recapitalisations and acquisitions by sub-investment-grade companies. The instruments are different (high-yield bonds and leveraged loans), the documentation is heavier (often a US-law indenture, the long contract that sets out a bond's terms and covenants), the investors are different (CLOs and dedicated high-yield funds, more on CLOs in section 08), and the team is usually a dedicated group within the bank.
Where LevFin money goes
1
Leveraged Buyouts (LBOs)
A private equity sponsor acquires a company funded mostly with debt. Debt as a share of total LBO sources commonly ranges from 50% to 75% of the purchase price, depending on the target's cash generation and the market.[10]
2
Acquisition financing
Corporate buyers borrowing to fund an acquisition. If the borrower is itself sub-IG, the deal sits in LevFin.
3
Refinancing & recapitalisations
Existing debt rolling over. The simplest LevFin work: take the existing capital structure, refinance at current market terms. Recapitalisations (dividend recaps) are PE sponsors borrowing more to pay themselves a dividend.
4
Refinancing old debt
"The best thing about bonds is that they mature." Bonds and loans need to be refinanced as they approach maturity, even if the company has done nothing else.
Bridge financing: getting from the deal to permanent funding
A bridge is a short-term loan that covers a cash need now and is designed to be repaid soon, once permanent funding is in place. The classic case is M&A: a buyer needs committed cash to sign an acquisition before it has time to raise bonds, so a bank provides a bridge to bond (or bridge to loan), money the buyer can draw on day one, then refinances it within months with a high-yield bond or term loan once the deal closes. Bridges also show up around IPOs and other events where cash is needed before the permanent capital is raised. The bank earns fees for committing the bridge and is motivated to refinance it quickly rather than hold it on its books.
06.1 Β· The LevFin capital stack
How a LevFin balance sheet is layered
An LBO capital stack is built from senior to junior. Each layer has different security, priority, pricing and covenants. The senior layers are cheapest and most protected; the junior layers are expensive and absorb losses first.
A typical LBO capital stack (top to bottom = senior to junior)
Each layer ranks ahead of the one below it on cash flows and on liquidation. Spreads and required returns increase as you go down the stack.
Revolving credit facility (RCF)
A flexible credit line for day-to-day cash needs, like a company credit card: the facility is the limit, the part used is "drawn", the rest is "undrawn" and available. Floating rate (the interest resets with a market benchmark, so it rises and falls), paid only on what is drawn. Held by relationship banks; first-lien secured (first claim on the pledged assets in a default).
Most senior
Term Loan A (TLA)
Amortising (the borrower repays it gradually over the life of the loan), floating-rate, held by banks. Lower margin than the TLB, but with maintenance covenants and a shorter maturity (5 to 7 years).
Senior
Term Loan B (TLB)
The workhorse of LevFin. Bullet repayment (the whole principal is repaid in one lump at maturity, with nothing paid down before then), floating-rate, held by CLOs and loan funds. Cov-lite (lighter covenants, see 06.3), 7-year typical maturity.
Senior
Senior secured high-yield bond
First-lien or second-lien bond. Fixed rate, callable. Held by HY funds and insurance. Indenture with incurrence covenants and call protection.
Senior secured
Senior unsecured HY bond
Unsecured, structurally subordinated to the secured stack. Higher yield. Common in larger LBOs where the secured baskets are full.
Subordinated
Mezzanine / PIK
Contractually subordinated. Often Payment-in-Kind (interest accrues rather than being paid in cash). Held by private debt funds. Highest debt cost.
Junior
Sponsor equity
The private equity firm's cheque. First-loss capital. Typically 25% to 50% of total sources in modern LBOs.
Equity
A concrete example: Blackstone's Gates Global LBO
In Blackstone's USD 5.4 billion LBO of Gates Global, the senior layers of the capital stack included a 7-year USD 2.5 billion cov-lite Term Loan B, a USD 125 million cash-flow revolver and a 5-year USD 325 million asset-based revolver (an RCF whose borrowing limit is set by, and secured on, specific assets such as receivables and inventory). The split between term loans and high-yield bonds depends on relative market pricing at the time of the deal.[15]
Leveraged loans vs high-yield bonds in one table
| Feature | Leveraged loans (TLB) | High-yield bonds |
|---|
| Coupon | Floating (base rate + spread) | Fixed |
| Maturity | 7 years typical | 7 to 10 years typical |
| Security | Usually first-lien secured | Senior secured or unsecured |
| Covenants | Cov-lite (incurrence only, see 06.3). Carried maintenance covenants before the 2008 Global Financial Crisis (GFC). | Incurrence only |
| Prepayment | Freely prepayable at any time | Call-protected (typically NC-4 for a 7-year, NC-5 for a 10-year bond) |
| Marketing | Bank meeting + Confidential Information Memorandum | 1 to 2 week roadshow + Offering Memorandum |
| Buyers | CLOs, loan funds, hedge funds, banks | HY mutual funds, ETFs, insurance, hedge funds |
| Documentation | Credit agreement | Indenture (often under New York law) |
Source: PitchBook LCD, Leveraged Loan Primer;[10] Ryan O'Connell, Leveraged Finance & High-Yield Bonds.[11]
06.2 Β· The Highly Confident Letter
The Highly Confident Letter
In a competitive LBO process, the PE sponsor has to convince the seller it can fund the purchase price. The cleanest proof is fully signed commitment letters from banks. When timing or structure makes that impossible, the alternative is a Highly Confident Letter (HCL).
What it is
An HCL is a letter from an investment bank stating that the bank is "highly confident" it can raise the debt needed to fund the acquisition, even though the actual commitments are not yet signed. It is not a binding commitment. It has no legal status.[12]
Drexel, Milken and Carl Icahn (1983)
The HCL was invented by investment bankers at Drexel Burnham Lambert in the 1980s, dominated by Michael Milken. The first one was written in 1983 for Carl Icahn's attempt to take over Phillips 66. Leon Black, Drexel's lead on the deal, proposed that Drexel write a letter to the target's bankers saying it was "highly confident" it could raise the required debt via junk bonds. The letter had no legal force, but by then Drexel had built such a reputation for placing junk bonds that the market took its confidence as sufficient comfort. The HCL became the standard pre-commitment tool in hostile LBO bids.[12]
How it works in practice today
An HCL is still used today, particularly in competitive auctions where bidders need to show financing credibility without locking down underwriting commitments early (which costs them ticking fees and exclusivity restrictions). After the bid is accepted, the HCL is replaced with formal commitment letters before signing.
06.3 Β· Covenants
How LevFin covenants work
Covenants are the contractual restrictions in a credit agreement or bond indenture. They constrain what the borrower can do while the debt is outstanding: how much more debt it can take on, whether it can pay dividends, whether it can sell assets, whether it can make acquisitions. Two structural types matter.
Maintenance vs incurrence covenants
Maintenance covenants
Continuous tests. The borrower must meet a financial ratio at every test date, usually quarterly.
- Example. Net debt / EBITDA must stay below 5.0x at every quarter end.
- Lender protection: strong. An early-warning system. A breach triggers a default and shifts control to the lenders, who can step in before things get worse.[13]
- Borrower: restrictive, especially in volatile sectors where the ratio can swing even when little is really wrong.
- Standard on RCFs and TLAs. Banks holding these facilities still demand them.
Incurrence covenants
Action-triggered tests. The ratio is only tested when the borrower takes a specific action: incurs new debt, pays a dividend, makes an acquisition.
- Example. The borrower can incur new debt only if, on a pro forma basis, its Fixed Charge Coverage Ratio is at least 2.00x.[14]
- Lender protection: weaker. Lenders cannot step in until the borrower actively does something; a bad quarter alone is not a breach.
- Borrower: flexible. A bad quarter triggers no test and no breach. Only an action (new debt, a dividend, an acquisition) is tested.
- Standard on HY bonds and TLBs. The "cov-lite" structure.
"Cov-lite": now the norm in the US, common in Europe
Cov-lite means a leveraged loan has incurrence-only covenants (like a HY bond) instead of the maintenance covenants traditionally associated with bank loans. Cov-lite started as the exception and became the rule: over 90% of US leveraged loans issued in recent years are cov-lite.[10] In Europe the share is lower but rising. The trend reflects a borrower-friendly market and competition between traditional syndicated lenders and private credit funds.
The main negative covenants in a HY indenture
Negative covenants restrict specific actions. A typical HY indenture includes (at minimum):
- Debt incurrence. The borrower can only incur more debt up to a ratio test (Fixed Charge Coverage Ratio typically 2.00x or stricter) plus a series of "permitted debt" baskets.[14]
- Liens. The borrower cannot grant new security on its assets to other creditors above defined baskets. Protects the HY bondholders' relative priority.
- Restricted payments. Limits on dividends, share buybacks, and investments outside the credit group.
- Asset sales. Net proceeds from asset sales must be used to repay debt or reinvested in the business within a window.
- Mergers and consolidations. Restrictions on the borrower's ability to merge with or be acquired by another entity.
- Affiliate transactions. Transactions with affiliates must be on arm's-length terms.
The "credit group" or "restricted group"
HY covenants apply only to entities inside a defined "credit group" or "restricted group". Subsidiaries outside this group (so-called unrestricted subsidiaries) are not bound by the covenants. Sponsors increasingly negotiate flexibility to move assets from restricted to unrestricted status, which is one of the most contentious recent topics in LevFin documentation.[16]
06.4 Β· Ratings
The rating agencies and the rating process
Credit ratings sit outside the deal team but shape pricing. For an IG bond, one rating may be enough. For a HY bond, market practice is to obtain two ratings, usually from two out of Standard & Poor's, Moody's and Fitch.[5]
The rating scale
| Tier | S&P / Fitch | Moody's | What it means |
|---|
| Prime | AAA | Aaa | Highest quality. Almost no credit risk. Swiss Confederation, top supranationals. |
| High grade | AA+ to AA- | Aa1 to Aa3 | Very strong. NestlΓ©, Roche. |
| Upper medium | A+ to A- | A1 to A3 | Strong. Most large Swiss corporates and banks. |
| Lower medium | BBB+ to BBB- | Baa1 to Baa3 | Adequate. The lowest rung of investment grade. BBB- / Baa3 is the line. |
| Speculative | BB+ to BB- | Ba1 to Ba3 | "Crossover" / upper high yield. Strongest HY credits. |
| Highly speculative | B+ to B- | B1 to B3 | Standard HY territory. Most LBOs land here. |
| Substantial risk | CCC+ to CCC- | Caa1 to Caa3 | High default risk. Distressed credits. |
| Default | D | C / D | The borrower has failed to pay. |
How the rating process works
1
Pre-engagement / rating advisory
The DCM team helps the issuer position its credit story. What ratios do the agencies look at? Where does the peer group land? What KPIs need to be improved before the agency meeting? This is a separate workstream from the deal itself.
2
Rating committee submission
The issuer submits a detailed business and financial review to the rating agency. Includes 5-year projections, peer analysis, sector view.
3
Management meetings
The rating agency meets with the issuer's CEO, CFO and key business heads. Same week, multiple meetings over 1 to 2 days. The agency uses these to test management's strategic thinking and projection assumptions.
4
Committee, decision, publication
The agency's rating committee meets, decides the rating and the outlook (positive, stable, negative, developing). Notifies the issuer. After confirmation, the rating is published. Process from engagement to first rating: typically 6 to 10 weeks for a new issuer.
07 Β· Swiss withholding tax
The 10/20 non-bank rule, explained
This is the most Swiss-specific topic in DCM. Understanding it cleanly will set you apart from bankers who only know the US or EU market.
The starting point: 35% Swiss withholding tax
Swiss withholding tax (WHT) of 35% applies to interest paid on bonds issued by a Swiss tax-resident borrower, and on certain Swiss bank deposits. It does not apply to ordinary interest paid by a Swiss borrower under a normal commercial loan to a single Swiss bank.[17]
If a loan is "recharacterised" as a bond under Swiss tax rules, the 35% WHT applies to all the interest going forward. This is where the 10/20 non-bank rule comes in.
The 10/20 non-bank rule in one paragraph
A loan to a Swiss tax-resident borrower will be recharacterised as a bond for WHT purposes if the loan has at least CHF 500,000 outstanding and either:
(a) more than 10 non-bank lenders under a single loan with identical conditions, or
(b) more than 20 non-bank lenders across all of the borrower's outstanding loans.[18][19]
If either threshold is breached, 35% WHT applies on the interest paid to lenders in the affected basket. This makes the loan effectively unattractive for foreign lenders who cannot fully reclaim Swiss WHT.
Why this rule matters in practice
1
Syndicated loans need transfer restrictions
A syndicated loan (one loan provided by a group of banks and funds together, not a single lender) gets bought and sold between lenders after it is made. That after-issue trading is the secondary market (see the vocabulary in section 01). Every Swiss syndicated loan agreement therefore caps how many non-bank lenders can hold a piece and requires consent to transfers. Without those clauses, each new non-bank buyer in the secondary market could push the loan past the 10/20 threshold and trigger the 35% WHT.
2
HY bonds by Swiss issuers trigger WHT
A bond issued directly by a Swiss tax-resident company is, by definition, a bond. So a HY bond issued by Swiss Co triggers 35% WHT on interest. Foreign HY investors can reclaim via tax treaty but it is administratively painful.[5]
3
HY bonds use foreign issuance vehicles
To avoid the WHT trap, Swiss groups typically issue high-yield bonds through a foreign subsidiary (often Irish or Luxembourg) that passes the proceeds back to the Swiss parent. Because a foreign entity issues it, the bond is not a Swiss bond for WHT purposes. These bonds are usually in EUR or USD, listed on a foreign exchange (Luxembourg or Euronext Dublin) rather than SIX, and sold to international high-yield funds, so Swiss retail investors play little part. That is no real loss: the natural buyers of high-yield paper are international institutions anyway.
4
HY bonds by Swiss issuers use New York law
When Swiss companies tap the international high-yield market, they do it on that market's terms: a New York law indenture with US-style covenants, sold under US Rule 144A and Regulation S. This is not US law leaking into Swiss practice; it is Swiss issuers choosing the global high-yield standard their investors expect. Swiss-law high-yield bonds exist but are rare (for example Groupe Arcotec).[5]
A concrete example: Swisscom's financing
Swisscom issues its public bonds through foreign vehicles, not directly out of Switzerland. As of early 2025, a EUR bond maturing 2026 was issued by Lunar Funding V, an Irish vehicle, secured by a matching loan from Lunar V to Swisscom, and a EUR bond maturing 2028 by Swisscom Finance B.V., a wholly owned Dutch subsidiary, both under an EMTN programme dated 13 May 2024 and listed on Euronext Dublin rather than SIX. The reason for the foreign structure is the 35% Swiss WHT that would hit a bond issued directly by Swisscom in Switzerland.[8]
The 2022 reform that didn't happen
The Swiss Federal Council proposed abolishing WHT on bond interest, alongside removal of the 10/20 non-bank rule constraints on syndicated debt. The reform passed Parliament on 17 December 2021 and was scheduled for entry into force on 1 January 2023. It would have made Switzerland a much more attractive bond issuance location and removed the need for foreign issuance vehicles for new bonds.[20]
The reform was subject to an optional referendum and was rejected by Swiss voters on 25 September 2022. As a result, the 35% WHT on bond interest and the 10/20 non-bank rule on syndicated loans remain in force.[21] The structural reasons for foreign issuance vehicles and for transfer restrictions in Swiss syndicated loans continue to apply.
The AT1 / TLAC exception
One narrow exception exists for systemically important Swiss banks. Regulatory capital instruments (AT1 bonds and TLAC instruments) issued by systemically important banks are exempt from Swiss WHT on interest, even when issued directly out of Switzerland. This is why the Swiss bank AT1 market is one of the few areas where Swiss issuers issue directly out of Switzerland in size.[20]
08 Β· Beyond the textbook
Things Swiss DCM bankers watch
14 topics that show up on live deals but never quite fit a structured framework. Tap any item to expand.
Green bonds, social bonds and sustainability-linked bonds (SLBs)
ESG-labelled debt is one of the fastest-growing parts of the Swiss DCM market. Three flavours, with very different mechanics.
ESGUse of proceeds
Green bond. Proceeds are earmarked for green projects (renewables, green buildings, clean transport). Issuer publishes a green bond framework reviewed by a second-party opinion provider (Sustainalytics, ISS ESG, Vigeo Eiris). Annual reporting on use of proceeds and impact.
Social bond. Proceeds for social projects: affordable housing, healthcare, education.
Sustainability-linked bond (SLB). Proceeds are unrestricted, but the coupon steps up if the issuer misses pre-defined sustainability targets (e.g. emissions reduction by a fixed date). The bondholders share in the financial consequence of missed ESG targets.
EMTN programmes: how repeat issuers move fast
Why all the big Swiss issuers run an EMTN programme and only ever publish "Final Terms" thereafter.
ProgrammesRepeat issuers
A Euro Medium Term Note programme is a master prospectus covering many future bond issuances. It is updated annually with a "base prospectus" plus supplements. Each new bond issued under the programme is launched with just a short "Final Terms" document defining the specific maturity, coupon and size. The full bond prospectus is the base prospectus + supplements + Final Terms together.
The time-to-market advantage is enormous. A repeat issuer can go from "we want to issue" to settlement in under a week.
AT1 and TLAC: regulatory capital for banks
A bond market that exists specifically because of banking regulation, not because issuers want to borrow.
RegulatoryBanks
Additional Tier 1 (AT1) bonds are perpetual, loss-absorbing securities issued by banks to meet Basel III capital requirements. Coupons are discretionary; the principal can be written down or converted to equity if the bank's capital ratios fall below a defined trigger.
Total Loss-Absorbing Capacity (TLAC) instruments are long-dated senior bonds issued by Global Systemically Important Banks (G-SIBs) and Swiss systemically important banks. They are bail-in-able under resolution: in a crisis, regulators can write them down or convert them to equity to recapitalise the bank without taxpayer money.
Both AT1 and TLAC sit between standard senior debt and equity in the capital structure. AT1 is much more loss-absorbing and carries a higher coupon. The Credit Suisse AT1 write-down in March 2023 is the most-cited recent example of how AT1 risk crystallises.
The CHF bond market has its own pricing dynamics
Swiss issuers can usually access cheaper funding in CHF than in EUR, often by a meaningful margin.
CHFPricing
The CHF bond market trades persistently tighter than the EUR market for a given issuer. The reasons: Swiss interest rates have been structurally lower than EUR rates for years, the Swiss pension and insurance investor base has a forced CHF requirement (asset-liability matching), and the universe of CHF-eligible issuers is narrow.
Practical consequence: Swiss issuers with multi-currency funding programmes often pick CHF for shorter maturities and EUR or USD for longer dated paper, depending on relative spreads at the time. The "basis swap" cost (the cost of converting one currency's funding into another via cross-currency swaps) is a key part of the all-in cost analysis.
Why "two of three" ratings on a HY bond
Market practice on the number of credit ratings is different for IG bonds vs HY bonds.
RatingsHY market practice
For an IG bond, a single rating (S&P, Moody's or Fitch) is typically enough. Large CHF and EUR issuers often have ratings from two agencies for institutional investor coverage.
For a HY bond, market practice is to obtain ratings from two out of the three major agencies.[5] Reason: HY investors are pickier and demand a second opinion before buying. Fitch is often the third agency selected after S&P and Moody's in Europe.
Call protection: NC-3, NC-4, NC-5 and Make-Whole
HY bonds protect investors from being called away when rates fall. The mechanics are formalised in two layers.
HYCall protection
Non-call period (NC). To call a bond is to repay it early, before maturity, an option the issuer holds. High-yield bonds restrict this: the issuer cannot call the bond for the first N years. Standard: NC-3 for 5-year bonds, NC-4 for 7-year bonds, NC-5 for 10-year bonds. Inside the NC period the issuer can only redeem at a "Make-Whole" price: the present value of all remaining coupons and principal, discounted at the relevant Treasury rate plus a small spread (typically 50 bps).[11]
Soft call (post-NC). After the NC period, the bond becomes callable at a declining premium. Typical schedule: at 102% in year 4, 101% in year 5, par from year 6 onwards (for a 7-year NC-4 bond).
Investor presentations vs roadshows
The marketing format for a bond depends on the type of bond and the issuer's profile.
MarketingProcess
IG bond from a repeat issuer. No marketing. Bookrunners go straight to investors with a deal announcement. Investors already know the credit.
IG bond from a new issuer or with a new structure. A short investor call or one-day Investor Presentation (IP). Management briefly walks through the credit story.
HY bond. A full 1 to 2 week roadshow. Management meets HY funds in person across London, New York, the Continent. The roadshow is supported by a preliminary Offering Memorandum (similar to a prospectus but US-style).[11]
Lev loan. A bank meeting. Lenders attend one meeting (in person or virtual), receive a Confidential Information Memorandum, then commit.[11]
Greenshoe / overallotment in bonds
Unlike equity, IG bonds do not have a true greenshoe. But the issue size can be flexed up during bookbuilding.
Sizing
In Swiss IG bond practice, the deal is launched with an "expected size" (e.g. "CHF 200m benchmark"). If the order book is heavily oversubscribed, the size can be upsized at pricing (to e.g. CHF 250m or CHF 300m) rather than tightening the spread aggressively. The decision is made by the issuer with the bookrunners at the end of the bookbuild.
For HY bonds, a similar mechanism exists. For leveraged loans, the lead arranger may add an "accordion" feature: a pre-agreed incremental tranche that can be raised in the future under the same documentation.
The Confederation: Switzerland's sovereign bond market
Eidgenossen, the deepest CHF benchmark, and how the Confederation issues debt.
SovereignBenchmarks
The Swiss Confederation issues bonds (called Eidgenossen) via auction managed by the Swiss National Bank. These are the CHF benchmark curve and are used as the reference rate for any CHF corporate bond pricing.
The Confederation is rated AAA by all three major agencies. The 10-year Eidgenosse yield is the headline rate Swiss DCM bankers quote when discussing market conditions.
Tap issuance: re-opening an existing bond
An issuer can re-open an existing bond at the prevailing market price, instead of issuing a fresh tranche.
TapQuick execution
A "tap" is when the issuer increases the size of an existing outstanding bond by issuing additional notes with the same maturity, coupon and ISIN. The price is set at current market levels, often at a small discount.
Taps are popular because they avoid having to rebuild liquidity in a new bond. A CHF 200m bond plus a CHF 100m tap becomes one CHF 300m line trading on SIX.
Private placements: the path of least disclosure
A private placement of debt is sometimes the cleanest option for mid-cap Swiss issuers.
Private placement
For a smaller borrower or for a special-purpose deal, a private placement to one or a few institutional investors can be faster and cheaper than a public offering. No prospectus is required (private placement falls under FinSA exemptions: qualified investors only, or fewer than 500 investors).
The trade-off is on price and size. Private placements tend to be smaller and priced wider than equivalent public offerings, because the investor pool is narrower and the bond is less liquid.
The 35% WHT trap on US investors
Why a US investor cannot just "reclaim" Swiss WHT and what that means for Swiss issuance structuring.
WHTCross-border
Under the Swiss-US tax treaty, a US tax-resident investor can typically reclaim 30% of the 35% Swiss WHT, leaving 5% net. But the reclaim is administrative and slow; many US asset managers refuse to invest in instruments that trigger Swiss WHT, even with treaty relief.
This is the practical reason Swiss issuers structure HY bonds through foreign issuance vehicles: a US bond fund will simply not buy a bond that comes with WHT friction, even if the math eventually works out.
Private credit vs broadly syndicated loans
A structural shift in the European and US LevFin market: more deals stay private with one or a few credit funds.
Private creditTrend
Private credit funds (Ares, Blackstone Credit, KKR, Apollo, ICG and others) increasingly lend directly to PE-backed companies, bypassing the broadly syndicated loan market. The instruments look like TLBs but are held by a small number of funds rather than syndicated across CLOs.
For the borrower the private credit option offers speed, certainty and flexibility on documentation. Pricing is wider than syndicated TLBs but the trade-off is often worth it for time-sensitive LBOs. For investment banks, private credit is both a competitor (the bank's own LevFin desk loses deals to them) and a partner (banks help arrange and place private credit deals).
The CLO equity check: who really holds leveraged loans
Most leveraged loans are not held by banks. They are held by Collateralized Loan Obligations (CLOs), which sit further down the same plumbing.
CLOInvestor base
A CLO is a fund that buys a portfolio of leveraged loans, then issues its own tranched debt and equity to fund the purchase. The CLO's debt tranches are sold to pension funds, insurance and other yield-seeking investors. The CLO equity (the residual cash flow after the debt is paid) is held by the CLO's sponsor or by dedicated CLO equity investors.
Practical consequence: when bankers talk about "the loan market", they are largely talking about the CLO market. The health of CLO formation, in turn, is the leading indicator of leveraged loan demand. When CLO formation drops, lev loan pricing widens.
Sources
Primary sources
Every Swiss-specific claim in this Bible traces back to a primary source: Swiss law firms' guides, SIX, the Swiss Federal Tax Administration, rating agency methodologies, and authoritative LevFin references. Click to open.
Sources
- Legal500, Switzerland Capital Markets: Swiss bond market overview, ~2,200 listed bonds, two thirds domestic, one third foreign issuers from ~40 countries, plus ~600 international bonds. legal500.com
- Mondaq / Swiss Bond Guide (NKF, Sep 2025): FinSA ex-post approval for straight bonds, 10/20 non-bank mechanism for loans to Swiss borrowers, CHF 500k threshold. mondaq.com
- Lexology, FinSA general introduction to International Capital Markets: FinSA harmonised prospectus regime, KIID requirement, plain vanilla bond exemption. lexology.com
- SIX Group, Bond listing on the Swiss Stock Exchange: CHF 20m minimum nominal, CONNEXOR web platform, T+3 provisional admission, 2 months for formal listing application, average bond size CHF 200-250m. six-group.com
- Lexology, Q&A: high-yield debt in Switzerland (Homburger): HY bonds by Swiss issuers under New York law (except Groupe Arcotec), 10/20 non-bank mechanism on bank loans, 2-of-3 rating market practice for HY. lexology.com
- S&P Global, GF raises record CHF 650 million in Swiss bond market: Largest single Swiss CHF bond by an industrial issuer, two tranches, Uponor acquisition financing. spglobal.com
- SIX, Swiss Bond Index (SBI) eligibility criteria: remaining maturity β₯ 1 year, issuance volume β₯ CHF 100m, fixed rate, composite rating BBB or higher. six-group.com
- Swisscom Financing portfolio: Lunar Funding V (Irish vehicle, 2026 maturity) and Swisscom Finance B.V. (Dutch subsidiary, 2028 maturity); EMTN programme dated 13 May 2024. swisscom.ch
- Schellenberg Wittmer, Chambers Capital Markets Switzerland: debt securities normally underwritten at a fixed price; CO Article 1156 and 652a prospectus requirements; Swiss-law eligibility for SIX listing. swlegal.com
- PitchBook LCD, Leveraged Loan Primer: leveraged loan defined as a syndicated facility arranged by banks and sold to institutional investors; LBO debt levels; over 90% of broadly syndicated US loans are covenant-lite; leveraged loan vs high-yield bond mechanics. pitchbook.com
- Ryan O'Connell, Leveraged Finance & High-Yield Bonds: HY roadshow vs loan bank meeting; NC-3, NC-4, NC-5 call protection schedule; TLA pro-rata vs TLB institutional; underwriting commitment by lead arrangers. ryanoconnellfinance.com
- Wikipedia, Highly Confident Letter: Drexel Burnham Lambert (Milken), 1983 Carl Icahn / Phillips 66, no legal status. wikipedia.org
- Federal Reserve Bank of Boston, High-Yield Debt Covenants and Their Real Effects: Maintenance covenants require continuous compliance; violation shifts control rights to lenders. Cov-lite share grew from ~10% in 2007 to over 80% by 2020 in US leveraged loans. bostonfed.org
- Simpson Thacher, Leveraged Finance 101: A Covenant Handbook: Fixed Charge Coverage Ratio 2.00:1.00 incurrence test; "credit group" or "credit box" concept; lien covenant and Permitted Liens. stblaw.com
- S&P Global Market Intelligence, Gates Global cross-border LBO loan: Blackstone's USD 5.4bn LBO of Gates Global; USD 2.49bn term loan, EUR 200m term loan, USD 125m cash-flow revolver, USD 325m asset-based revolver; seven-year cov-lite term loans, five-year revolvers. spglobal.com
- Paul Weiss, US PE Digest: Cov-lite term loans allow unlimited acquisitions subject to pro forma incurrence; restricted vs unrestricted subsidiaries and collateral leakage as a covenant issue. paulweiss.com
- Chambers and Partners, Investing in Switzerland 2026: generally no Swiss WHT on interest from a Swiss debtor except for interest on bonds and recharacterised loans under the 10/20 non-bank rule. practiceguides.chambers.com
- IFLR, A guide to cross-border financing in Switzerland: 10/20 non-bank rule, 35% WHT trigger, more than 10 non-bank lenders under a single instrument or more than 20 across all instruments. iflr.com
- Mondaq / BΓ€r & Karrer, Swiss Guarantees And Securities: CHF 500,000 threshold; aggregate non-bank lenders > 10 under identical-terms facility ("Anleihensobligation") or > 20 under variable-terms facility ("Kassenobligation"). mondaq.com
- Homburger, Abolition of withholding tax on bond interest: 35% WHT on Swiss-issued bond interest, AT1 and TLAC exception for systemically important banks, foreign issuance vehicles as the bypass mechanism. homburger.ch
- International Tax Review, Swiss WHT and stamp duty reform: reform passed Parliament December 2021 (intended entry into force January 2023); rejected by referendum in September 2022; existing rules remain in force. internationaltaxreview.com
