Debt capital markets
Capital MarketsThe desk that arranges bond issues, mostly for investment grade borrowers who come to market repeatedly.
Also written: DCM
Debt capital markets originates and executes bond issues. The typical client is an established borrower with an investment grade rating that returns to the market regularly to refinance maturities or fund investment, which makes the relationship continuous rather than episodic.
Execution is faster and far more standardised than an M&A process. Documentation is largely established, and the live questions are when to go, how long a maturity to sell and what spread over the relevant benchmark the market will require that morning. Much of the value the desk adds is judgement about timing and about how much size the market will absorb without moving the price.
The difference from leveraged finance is the credit and therefore the risk. Debt capital markets works mostly with issuers investors already accept, while leveraged finance works below investment grade and frequently commits the money before it has been sold down, which puts the bank's own balance sheet between the borrower and the market.
Where the desk reports varies by firm. Some group it with equity capital markets into a single capital markets division, some place leveraged finance inside it, and others separate financing entirely. Do not assume a structure before checking the firm.
Worked example
Illustrative: an investment grade issuer needs to refinance a maturing bond. The desk recommends a seven year issue at a spread over the benchmark government yield.
It builds a book of institutional demand in a single day, prices in the afternoon and settles within the week.
Compare a buyout financing, where the bank may commit the full amount months earlier and carry the risk until it can be syndicated.