"Accessing a wider investor base and raising a company’s public profile are just some of the additional benefits a retail bond issue can bring"
Xavier Rolet, Chief Executive, London Stock Exchange Group
What are retail bonds?
Retail bonds are a type of bond that has a lower denomination than the traditional corporate bond market. These types of bonds have yields that may be fixed, floating or index linked. Typically, a listed retail bond will have a maturity of 5-10 years.
Similar to an unsecured loan note, retail bonds are a form of unsecured debt from an issuing company. Private investors are invited to lend to the issuer and in exchange, they receive a fixed annual return that is usually paid once or twice a year.
Bondholders of listed bonds receive cash interest while unlisted retail bonds can pay out through various outlets such as store vouchers or company discounts.
Companies that issue retail bonds offer a rate of interest that is higher than UK high street banks. This is due to the higher risk of retail bonds in comparison to cash deposits. Retail bonds are not covered by the Financial Services Compensation Scheme and investors are dependent on the bond issuing company staying solvent.
Learn more from the London Stock Exchange's Guide to Retail Bonds.
What is the ORB and how does it work?
The ORB is where stock brokers buy and sell retail bonds on the secondary market. It is also where investors can find important information such as the price of retail bonds and the yields they can expect to receive.
Why invest in retail bonds?
Retail bonds can be a viable option for companies seeking investment. They are particularly useful if companies are seeking flexible, long term solutions to help them diversify their pool of capital.
- Flexibility: Companies are able to define the terms and conditions of their retail bonds (subject to legal requirements). Retail bonds also expand the opportunities available for companies to attract long term financial loans from a range of sources
- Brand awareness: The ORB is an excellent platform for companies to increase their brand awareness amongst key targets such as wealth managers, investors and major clients
- Costs: Bond issuers may avoid unnecessary costs and setbacks associated with other loans such as equity issues
For more information on issuing a retail bond please refer to the London Stock Exchange’s Listing Guide – click here.
Differences between retail bonds and mini bonds
Whilst mini-bonds are similar to retail bonds (they are both ways for private investors to lend money to a company), mini-bonds are subject to much looser regulation as they are not traded on the stock market.
Unlike retail bonds, mini-bonds must be kept until they reach maturity as they cannot be traded on the stock market.