Bonds show contrasts in risk

Tullett Prebon's bond is a straightforward unsecured bond with a 5.25 per cent semi-annual coupon maturing in June 2019 (ISIN: XS0859261520). The bond is the second to arrive on the ORB market from a broker after ICAP launched a 5.5 per cent issue in July, so inevitably the two will be compared. The lower coupon from Tullett raises eyebrows, but secondary market prices for ICAP show the bond yield falling to about 5.3 per cent, effectively wiping out the discount between the two.

What might provide an additional incentive for investors to buy Tullett's offering is that share prices for inter-dealer brokers have been incredibly volatile over the past six months, so capital stability has become much more attractive. The reason for this is that trading volumes across most asset classes are down, except for certain areas of fixed income, which crimps the commission that inter-dealer brokers earn from transactions - ICAP issued a profits warning earlier this year, for example.

The other bond to pique investor interest is a 5.75 per cent issue (ISIN: XS0853358801) from an educational provider called Alpha Plus Schools. The bond is interesting because it is the first on the market to be secured against £84m of underlying assets, putting the bonds right at the top of the debt pyramid on a par with senior bank debt. Alpha Plus runs high-end schools in central London and is owned by the DV4 evergreen fund and advised by Sir John Ritblatt's Delancey real estate development company. The company needs cash for expansion after a big increase in pupil numbers in London over the past few years. The basic finances look sound enough - the interest charge would be covered by more than three times Alpha's cash profits, for example - and the coupon is better than many recent unsecured offerings.

Bonds issued on ORB this year