What are Medium-term Notes
Medium term notes are another type of corporate debt security. One of their unique characteristic is that the notes are not sold all at once. Instead they are offered continuously to investors by an agent of the issuer. The notes are registered with the SEC under Rule 415 (the shelf registration rule), which gives a corporation the maximum flexibility for issuing securities on a continuous basis.
Medium term notes are sold in various maturity ranges: 9 months to 1 year, 1 year to 18 months, 18 months to 2 years, and so on. The maturity can go upto 100 years. By this definition, they are not really medium-term and are also not notes!
The issuers have the flexibility to design the MTNs based on their needs. These notes can be issued fixed- or floating-rate notes. The coupon payments can be denominated in any currency (U.S. dollars or in a foreign currency). They can also have special features such as caps and floors, and can also be combined with a derivative to create structured medium-term notes.
MTNs are distributed on a best-efforts basis by either an investment banking firm or other broker/dealers acting as issuer’s agents.