A way for companies to receive debt funding on a regular and continuous basis. By establishing these programs, a company can more easily ensure that it will have sufficient cash to meet its daily needs, particularly useful when securitizing assets.

These programs fill the gap between short-term commercial paper (with a maximum maturity of 9 months) and traditional long term corporate debt (with maturities ranging between 15 to 30 years). Medium term notes tend to have their own type of settlement procedures and marketing styles - which are more akin to commercial paper than traditional debt securities.

Although medium term notes typically have maturities between 2 to 5 years, they are not required to have medium terms. In fact, it is not uncommon for companies to register securities with both short and long term maturities as part of a medium term note program. See more @ why would a company have a MTN program.

Medium term note programs are also known as "MTNs".

Source: You can review a discussion of Freddie Mac's MTN program at http://www.freddiemac.com/debt/html/otherdebt.html.

Why would a company have a medium-term note program?

It gives a company the capability to sell a wide range of debt securities - without the need to go through the SEC's registration process for each issuance. See more @ how to register a MTN program with the SEC.

Who develops medium-term note programs?

In most cases, commercial paper departments of investment banks.

These programs are sold on a principal or agency basis from a dealer's trading desk. They often are administered by a bank's specialty group - rather than the typical relationship bankers - and are kept only in book-entry.

Companies tend to have their own styles in developing their MTN programs - including differing styles of the use of base prospectuses and prospectus supplements. See more @ differences between base prospectuses and prospectus supplements.

Source: For a description of GE Electric Capital Corporation's MTN programs, see http://www.sec.gov/rules/proposed/s73098/werner1.htm.

Who sets the terms of medium-term note programs?

Similar to commercial paper, the market for MTNs is investor driven. Dealers continuously offer MTNs within a specific maturity range and an investor can negotiate to have a dealer meet its particular investment and funding needs at a specific maturity level. See more @ what types of securities normally are sold through MTN programs.

As in the case of shelf-registered debt securities, investors are primarily interested in rating information, issuer, maturity and yield (premium over comparable US Treasury securities). See more @ what is a "shelf offering."

What types of securities normally are sold through medium-term note programs?

The most common type is a fixed-rate, nonredeemable senior debt security. However, companies often retain the discretion to issue other types of debt securities - including floating rate, zero coupon, non-U.S. denominations, amortizing, multi-currency, subordinated or indexed securities.

Most programs are rated investment-grade by at least one nationally recognized rating agency.

Are medium term notes sold on a firm commitment or best efforts basis?

It varies. The dealer's traditional obligation is to sell them on a "best efforts" basis; however, occasionally competitive pressures result in a dealer taking down MTN as principal. In both cases, the MTN dealer is generally regarded as an "underwriter" for Section 11 purposes.

MTN buyers are also the institutional buyers of underwritten corporate debt securities.

B. Registration of Medium-Term Note Programs

How are medium-term note programs registered?

On a shelf registration statement under Rule 415.

MTN issuers eligible to use Form S-3 or Form F-3 may file a shelf registration statement under clause (x) of Rule 415(a)(1), permitting continuous or delayed offerings. MTN issuers not eligible to use Form S-3 or Form F-3 are limited to continuous offerings under clause (ix). See more @ primary eligibility for use of shelf offerings.

There is more flexibility under clause (x) in being able to issue debt securities generally - or even equity securities - from a shelf registration statement that permits either continuous or delayed offerings. In addition, the incorporation by reference advantage offered by Form S-3 and Form F-3 is significant - it avoids the need for a lengthy prospectus and frequent post-effective amendments. See more @ incorporation by reference.

Note that companies can register MTN programs on Form S-1 - but it is rarely done due to the need for difficult coordination between drafting periodic reports and updating the MTN registration statement. See more @ updating shelf registrations.

Are MTN programs always registered with the SEC?

No, some are sold in private placements in continuous Section 4(2) programs or under Section 3(a)(2) of the Securities Act of 1933.

Typically, the offering circular and selling process is nearly identical to registered MTNs.

Source: In a no-action letter granted to Sumitomo Trust & Banking Co., Ltd., 1986 SEC No-Act. Lexis 2708 (Aug. 28, 1986), the SEC staff took the position that branches and agencies of foreign banks are able to rely on Section 3(a)(2).

How complicated is a takedown for a MTN program?

Not very complicated. Each takedown only requires a few matters to be addressed, including:

terms of the takedown (frequently done orally with written confirmation)
in certain cases, an updated comfort letter, legal opinions and officers' certificate
delivery of the base prospectus and pricing supplement to investors
a note - either in global or certificated form - completed by the trustee or issuing and paying agent upon the company's instructions
filing a pricing supplement under Rule 424 with the SEC. See more @ what is a "pricing supplement."

What is disclosed in a "pricing supplement" for a MTN offering?

Not very much. They include the bare bone terms of the offering, such as:

title,
reset information,
issue date,
maturity date,
first call date, if any,
original and current coupon,
underwriter, and
callable, if applicable.

For agency takedowns, the pricing supplements only disclose the price of the securities. For principal takedowns, the pricing supplements disclose either:

set price, subject to adjustments by the broker), or
price at which the broker will purchase the MTNs from the company and that broker intends to reoffer them "at the market."