Eurobonds are debt instruments issued at public offerings for the purpose of raising company capital. Just like Bonds, the borrower promises to pay the principal amount at the end of maturity, as well as interest on the coupon which is paid to the bearer annually. Unlike Bonds, Eurobonds are international bonds that are issued, sold and traded, outside the Country in which the currency is denominated. Most firms located outside the US, mainly Multi National Corporations (MNC), issue Eurobonds in US currency to be sold in Europe. For example: BMW issues Eurodollar Bonds (Eurobonds denominated in US currency) in Austria. Eurobonds issued in Japanese Yen are called Euroyen. The name Eurobonds is a bit misleading and does not signify that the bonds are issued in Eurodollar currency. Most often they are issued in multiple countries.

The fact that Eurobonds are issued outside any individual Country’s jurisdiction, means they are not registered by any regulatory agency. This means no government regulation and no tax fees. Also this means that whoever holds the bond is the owner. Legally, institutional investors are prohibited from purchasing non registered securities so most Eurobonds will register on the National Stock Exchange, mainly the London, Luxemburg and Tokyo stock exchanges. On the large scale though, the Eurobond is purchased in the over the counter market.

Eurobonds can be classified into several different categories. “Conventional/Straight” Eurobonds hold a fixed rate coupon which pays annually. “Floating Rate Notes” (FRN/VRN) have a floating coupon rate which moves in relation to the benchmark usually positioned by LIBOR or EURIBOR, in addition to other adjusted. “Zero-Coupons” do not offer interest payments, but are usually sold at a reasonable discount. “Convertibles” can be exchanged for shares, usually within an agreed upon holding period and exact price. Convertibles can be categorized as equity, given their liquidity and riskiness. The Holder however can decide whether he wants to convert or not. Lastly, “High Yield” bonds are those rated below BBB usually offering high coupon and discount price to cover the risk.

Sources:

http://www.eurobonds.info/

http://financial-dictionary.thefreedictionary.com/Eurobonds

http://www.investinginbondseurope.org/