Systems, Methods, and Computer Program Products for Creation and Trading of Enhanced Bonds

• US 20110196772A1
• Filed: 02/09/2010
• Published: 08/11/2011
• Est. Priority Date: 02/09/2010
• Status: Abandoned Application

• Current Assignee: Ebond Advisors LLC
• Original Assignee: Ebond Advisors LLC
• Inventors: MacWILLIAMS, Richard K., McQuown, John Andrew
• Application Number:
  US12/703,073
• Publication Number:
  US 20110196772A1
• Time in Patent Office: Days
• US Class Current: 705/37
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• CPC Class Codes: G06Q 40/04 Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange

Abstract

A system, method, and computer program product are provided for the creation of enhanced bonds. Enhanced bonds are backed by the security of a credit default swap contract without the need for separate purchase thereof. A bond dealer is able to exchange a traditional bond instrument, which has been issued in a manner that permits the exchange, for enhanced bonds by selling the credit default swap contract to an eBond LLC and tendering the exchangeable bonds for eBonds through the bond indenture trustee. The enhanced bond facilitator calculates the exchange rates for these instruments at the time of exchange based on several variables, including the cost of the underlying credit default swap contract for a desired level of protection.

Claims

1. A method comprising:

calculating, by one or more computing devices, a price and yield for an enhanced bond;

calculating, by the one or more computing devices, an original issue discount price and yield for an exchangeable bond based on the enhanced bond and a total cost of a credit default swap contract;

calculating, by the one or more computing devices, a rate of exchange based on receipt of the exchangeable bond and the credit default swap contract in exchange for tender of the enhanced bond; and

publishing, by the one or more computing devices, the rate of exchange.

2. The method of claim 1, further comprising:

receiving the exchangeable bond and the credit default swap, plus a cash amount based on the rate of exchange; and

exchanging the exchangeable bond for the enhanced bond.

3. The method of claim 1, further comprising:

receiving the enhanced bond and an additional credit default swap, plus a cash amount based on a rate of exchange from the enhanced bond to a bond having additional enhancement; and

exchanging the enhanced bond for the bond having additional enhancement.

4. The method of claim 1, further comprising:

receiving the enhanced bond;

selling a credit default swap;

paying a cash amount based on a rate of exchange from an exchangeable bond having less enhancement or no enhancement; and

exchanging the enhanced bond for the exchangeable bond having less enhancement or no enhancement.

5. The method of claim 1, wherein the exchangeable bond and the credit default swap contract have a same maturity date.

6. The method of claim 1, further comprising:

purchasing the credit default swap contract from a dealer.

7. The method of claim 1, wherein calculating the original issue discount price comprises:

subtracting the total cost of the credit default swap contract from the price for the enhanced bond.

8. The method of claim 1, further comprising:

creating an enhanced credit default swap backed by the credit default swap; and

providing the enhanced credit default swap to a bond indenture trustee.

10. The article of manufacture of claim 8, the operations further comprising:

receiving the exchangeable bond and the credit default swap, plus a cash amount based on the rate of exchange; and

exchanging the exchangeable bond for the enhanced bond.

11. The article of manufacture of claim 8, the operations further comprising:

receiving the enhanced bond and an additional credit default swap, plus a cash amount based on a rate of exchange from the enhanced bond to a bond having additional enhancement; and

exchanging the enhanced bond for the bond having additional enhancement.

12. The article of manufacture of claim 8, the operations further comprising:

receiving the enhanced bond;

selling a credit default swap;

paying a cash amount based on a rate of exchange from an exchangeable bond having less enhancement or no enhancement; and

exchanging the enhanced bond for the exchangeable bond having less enhancement or no enhancement.

13. The article of manufacture of claim 8, wherein the exchangeable bond and the credit default swap contract have a same maturity date.

14. The article of manufacture of claim 8, the operations further comprising:

purchasing the credit default swap contract from a dealer.

15. The article of manufacture of claim 8, wherein calculating the original issue discount price comprises:

subtracting the total cost of the credit default swap contract from the price for the enhanced bond.

16. The article of manufacture of claim 8, further comprising:

creating an enhanced credit default swap backed by the credit default swap; and

providing the enhanced credit default swap to a bond indenture trustee.

9. An article of manufacture including a computer-readable storage medium having stored thereon computer-executable instructions, execution of which, by one or more computing devices, causes the computing devices to perform operations comprising:

calculating a price and yield for an enhanced bond;

calculating an original issue discount price and yield for an exchangeable bond based on the enhanced bond and a total cost of a credit default swap contract;

calculating a rate of exchange based on receipt of the exchangeable bond and the credit default swap contract in exchange for tender of the enhanced bond; and

publishing the rate of exchange.

17. A system comprising:

a memory configured to store modules comprising;

a first calculating module configured to calculate a price and yield for an enhanced bond,

a second calculating module configured to calculate an original issue discount price and yield for an exchangeable bond based on the enhanced bond and a total cost of a credit default swap contract,

a third calculating module configured to calculate a rate of exchange based on receipt of the exchangeable bond and the credit default swap contract in exchange for tender of the enhanced bond, and

a publishing module configured to publish the rate of exchange; and

one or more processors configured to process the modules.

18. A method comprising:

obtaining, by one or more computing devices, a rate of exchange based on tender of an exchangeable bond and a credit default swap contract in return for an enhanced bond;

tendering the credit default swap;

exchanging the exchangeable bond for the enhanced bond; and

offering the enhanced bond for sale to an investor.

19. The method of claim 18, further comprising:

exchanging the enhanced bond for a bond having additional enhancement.

20. The method of claim 18, further comprising:

exchanging the enhanced bond back for an exchangeable bond having less enhancement or no enhancement.

21. A method comprising:

forming a holding company;

specifying terms of a bond indenture to qualify a bond as an exchangeable bond; and

publishing terms of exchange for the exchangeable bond comprising specification of tender of a CDS contract to the holding company as a condition for the exchange.