DEFINITION of Note Issuance Facility (NIF)
A note issuance facility (NIF) is a syndicate of commercial banks that have agreed to purchase any short to medium-term notes that a borrower is unable to sell in the eurocurrency market. A note is defined as a debt security that obligates loan repayment with both a set interest rate and time period.
BREAKING DOWN Note Issuance Facility (NIF)
The note issuance facility acts as an underwriter (although in contrast with an underwriter of company stock in an initial public offering or IPO). The facility will generally accept the notes from the borrowers and resell them in the Eurocurrency markets. Should the borrower be unable to sell all notes, the syndicate is obligated to purchase all remaining notes from the borrower. Note issuance facilities are useful in reducing risk and costs for both the borrower and the lender.
The eurocurrency market (also known as "euromoney") applies to currency and banks in any country. Including "euro" in the name can be misleading; eurocurrency transactions do not have to involve European countries. South Korean won deposited at a bank in Norway is considered eurocurrency, for example. US dollars held in a bank in Singapore would also be considered eurocurrency.
Note Issuance Facility Versus Revolving Underwriting Facility
Similar to note issuance facility a revolving underwriting facility or RUF facilitates short-to-medium-term credit in the Eurocurrency markets. While in a NIF, the syndicate will agree to purchase outstanding notes, in a RUF, the syndicate agrees to provide loans in the event that a borrower is unable to sell.
Note that issuance facilities can often expedite corporations’ or other borrowers’ access to funds.
History of Note Issuance Facility
The market for NIFs first developed in the early 1980s and grew significantly throughout the decade. At the time, many international banks considered it a profitable market, particularly during the depression of the syndicated credits market. This came on the heels of the early 1980s debt crisis.
By the early 1990s, however, more popular forms of financing such as euro commercial paper (ECP), and euro medium-term notes (EMTNs) were beginning to take over. A euro commercial note is an unsecured, short-term loan, which a bank or corporation issues in a currency different than its domestic currency; while a euro medium-term note is a flexible debt instrument of longer duration (medium-term). Euro medium-term notes are both traded and issued outside of the United States and Canada in international money markets.