What is a Brady Bond?

The Brady Bond is a bond born from the Brady Plan in 1989 by Nicholas Brady, who tried to avoid a cessation of payments to North American financial entities.

Today, a Brady bond serves as a financial instrument for emerging countries that serve to restructure the debt with foreign commercial banks. For this reason, the countries that request them will have more freedom and less pressure to be able to pay the loans received more easily and in longer periods, being able to reach 30 years.

Brady bonus features

Among the most outstanding features of the Brady bond, we find:

  • Supported by International Monetary Fund (IMF) and the World Bank
  • To accept this type of bond as a means of payment, countries would have to stabilize their macroeconomics, liberalizing trade and facilitating investment, also reducing the size of the state through privatization.
  • The bonds were part of a plan, the objective of which was to ensure the payment of external debt in the future.
  • Long maturities, reaching 30 years.

Brady Bond Types

The Brady bond types are:

  • Bonus at par: bank debt is exchanged for fixed income bonds, and low interest is set. The debtor country ensures a guarantee of 12 to 18 months of accumulated interest, being deposited in a cash account at the FED.
  • Bond below par: the issue price is less than nominal. Same guarantees as the bond at par, except that the loan is exchanged for a bond with floating coupons and not with a fixed return.
  • New money bonds: they are variable income, short term and have no guarantee.
  • Front-loading reduced interest bonds (FLIRB): bank debt exchanged for medium-term bonds, interest initially below market and increasing over the period. Next, floating interest rate.

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