Bonds guide

CORPORATE BONDS

Corporate bonds are one of the most useful financing tools that real companies use to get funds. Sim Companies simulates real world corporate bonds in a simpler way, the aim is to simplify the mechanics.

Funding is essential to get your company going, however, it is also a high risk element. If a company borrows too much at a high interest, it can make the game play a bitter experience. This is mainly why the bonds feature unlocks at level 10 when it's assumed you are a skilled businessman by now and know what you are doing.

WHAT ARE BONDS?

Bond is essentially a debt, or an 'I owe you' paper. When companies sell bonds, they get money in return, which they will have to pay back later. The bond buyer/owner receives an interest while he owns the bond.

In Sim Companies, the bonds cannot be re-sold, so the mechanics of bond's life-cycle is kept simple. The bond is issued by the bond issuer (the company seeking funds). Bonds are put on the exchange for potential buyers to see. Once the bond is purchased, the bond issuer/seller gets the money, and the bond buyer/owner will receive daily interest from now on. As mentioned earlier, the purchased bonds can't be re-sold to other companies.

Once the bond issuing company no longer wants to pay interest, it can call the bond (matures after 14 days), which means the bond issuing/selling company buys the bonds back. It has to return the borrowed funds but does not have to pay the interest anymore.

SELLING BONDS

Issuing or Selling bonds means you are allowing other players to loan you cash.

To sell bonds go into your Headquarters (HQ) and find the Finance tab.

Open

Open

AMOUNT is increments of $5,000
INTEREST can be set to 0.50% thru 2.0%

Interest increases or lowers the amount you pay daily. Selecting UPDATE sends your bonds to the exchange.

You can edit your offerings in the exchange or finance tab if would like to change the Amount and Interest offered or if you made any mistakes.

HOW TO USE BONDS EFFECTIVELY

The art of using this feature efficiently is in knowing what your Return on Investment (ROI) is, or what it actually will be, after you get the funding, and adjusting your interest rate accordingly.

Let's look at an actual example - your company is looking to get a loan of $51,750 to purchase construction materials. You already know you want to build a power plant, and you are confident you will make 8.08% return on investment on it every day. This means you will make $4,183 profit when selling power every day. All you need to do now is issue bonds that total up to a value of $55,000, with interest rate of, say 2%, so you will pay $1,100 to the bond buyer daily. This means you are making around $2,500 more every day by issuing bonds than you would if you didn't issue these bonds. You would always want to offer lower interest rate than what your actual return would be. But the higher the interest rate, the higher are the chances somebody will buy your bonds (effectively lend you the money).

The same goes the other way round; your company may be sitting on a lot of cash, and you see that the best return on investment you can get is around 1%. In which case, you can look at the bond market and find a trustworthy, reliable company offering 2% interest rate.

You may have a good supplier who's delivering reliably the resources you want. But the quantities are just not there yet. You can buy his bonds, giving him the boost he needs to expand and better fulfill your needs!

BUILDING RETURN ON INVESTMENT (ROI)

Let's illustrate with a few examples and real numbers plugged in. Please note that your production and selling price may differ depending on the cost of your labor and input resources. Use these just as guidelines. Take a look at the ROI (return-on-investment per day) If this is higher than your bond interest, you will make more money than what you pay on the interest.

Warning! You should take into account that lvl 3 of any building, costs twice as much as a lvl 2 upgrade while giving the same production uplift, so if lvl 1 and lvl 2 building generates 10% ROI, then the level 3 will only do 5%. Also, the more buildings you have the higher administration cost, so you can also expect your labor costs to go up. The safest way is to issue the bonds gradually, few at a time, one building at a time.

Power plant (lvl 1)

Input Parameters

Return on investment (ROI)

Farm (lvl 1)

Input parameters

Return on investment (ROI)

Note: The transportation cost plays a major role in the food industry, which is why selling using contracts/market has very different ROI when compared to selling with retail.

Electronics factory (lvl 1)

Input parameters

Return on investment (ROI)

BUYING BONDS

If you are looking to loan out your cash to other players then this is called Buying bonds. This is done through the Exchange. There are six (6) categories to buy from based on the Ratings of the companies.

Notes:

1. Companies can invest only a % of their own worth into a single company. Limit of 1% up to level 15, limit of 3% up to level 20, and limit of 5% level 20+.

2. Buying Bonds increases Accounting Overhead fees. Frequently Asked Questions number 14, What’s Accounting Overhead?

HOW DO I PAY/COLLECT THE INTEREST?

1. When and how do I pay the interest?

2. How do I collect interest if I bought someone’s bonds?

The money is automatically deducted/paid starting at 00:00 UTC (midnight). The deduction/payments has to process the entire player database and does not happen instantly.
See Time Table in the Library for your local time and how long it may take.

HOW MANY BONDS CAN I SELL?

You are limited to selling bonds based on your Building Value (BV). Building Value is listed on your profile below your Company Value (CV).

Example:
This company has maxed out their bonds based on their Building Value. They sold $85,000 in bonds with a Building Value of $86,250. Remember bonds are sold in increments of $5,000.

Note: Building Value is the scrap value of your buildings not the construction costs of your buildings. See Construction Guide about “Scrapping.”

PAYING BONDS BACK

Calling Bonds (paying bonds back) can be done after 2 weeks (14 days). In your Headquarters (HQ); under the Company Financing, open the bond by clicking on the small arrow to the left of the bond owners name.  This will drop down the bonds information and now we can click on "Callable" in the lower right of that drop-down box.

Reminder: the "Callable" option will only be available if the bond has matured the full 14 days.  

A menu will appear on screen that allows you to pick how many bonds you'd like to call. Enter the amount of bonds you are calling. Select “Call Bonds” to pay the bonds back.

If you are a bond owner and someone has Called the bonds before the 14 day maturity time limit – scroll down to the Insolvency section.

GUARANTEES

I am buying bonds, what's the guarantee that the bond issuing company will pay the interest? Well, there's no guarantee. Interest is deducted automatically given the bond issuing company has sufficient money. But if the player stops playing, resets or deletes the account, the bonds may be called at 60% value. It's called a bad investment, see 'Insolvency' below.

Sim Companies has its own rating agency that assigns ratings to companies based on their standing. You can use the assigned ratings as a pointer to determine the level of risk when investing in bonds.

INSOLVENCY

Bond interests are deducted in the order the bonds were sold. If your company budget does not allow interest deduction at UTC midnight, the missing payment is recorded and is paid at the next UTC midnight together with the new interest payment.

Bankruptcy Proceedings
If there are 3 days of missed payments (missing 3 payments in a row); bankruptcy proceedings are executed. The insolvency process will call a part of your bonds starting with the lowest interest rate, at face value (until $500k worth of bonds were called, or all bonds were called).  Afterwards, buildings are liquidated at book value (balance sheet value) to recover the cash. If building liquidation(s) are not able to cover all needed cash, inventory resources are liquidated at the inventory value, approx. 85% of market price. Called bonds are written off and you no longer have to pay interest on them. The cashflow will have details of how your buildings and resources were liquidated. After liquidation there may be cash left over allowing the company to pay interest.

Creditors, however, are only getting the restructure percentage, see below.  After the third day of missed payments (starting on the 4th day) there is a chance of the bonds bought will be called based on the order (oldest bonds first).  The insolvency process will call bonds and restructure percentages will be paid out.   If the defaulter has money left over from their insolvency proceedings; some Creditors payments will proceed to be paid.

Player reset or deleted

If the company that issued bonds is reset/deleted, the system first liquidates all building to free up cash. The bonds are then called in the order, best ranking first. If there is enough cash to cover the bond at face value, 100%, the bonds are called. If there is less cash, bonds are called at the restructure percentage.

If the company that bought your bonds is reset/deleted the bonds are transferred to non-player character (NPC) and you still need to pay the interest until the bond is called.

INSOLVENCY FOR BOND OWNERS

You own bonds and the company you bought from can’t pay the interest or goes inactive.

In this case, bond owners will receive messages via the Personal Assistant.  It will list the company that is late and the amount you should have received.

Late payments will show up in your Account History under "interest."

Companies that have gone inactive will still pay the interest owed. The game will pay the interest as long as there are funds to pay it.  In the event of not enough cash recovered; insolvency proceedings are executed.

Example: Player sold 40 bonds ($200k face value). Cash is reduced to zero, causing bankruptcy proceedings. One building is scrapped. This frees up $300k; creditor gets the restructure percentage, defaulter has full value deducted: $200k. There is $100,000 cash left in to cover the interest of the remaining bonds. This will repeat until there are no more bonds to pay.

As a bond owner you will receive late payment messages like the one posted above.  To access an inactive player's account that is late on payments you have to go through bond section in your Headquarters (HQ).  Clicking on the company avatar will go to that company's profile.   You will not be able to search via the search bar for an inactive company.  

Once there you can view the company profile to see how many bonds were sold and how many buildings are left.

RESTRICTIONS

Some restrictions on use of bonds are in place to create a fair-play environment and make embezzlement difficult.

• Only companies at level 10 or higher can issue or buy bonds.

• Companies deemed affiliated to each other by the game system cannot buy each other's bonds.

• Interest rate is limited to range of:  0.5% to 2.0%

• Companies can't buy bonds at lower interest than the interest rate at which they themselves have issued bonds.

• Bonds can only be called after 2 weeks (14 days) from the time of sale.

• Companies can invest only a % of their own worth into a single company. Limit of 1% up to level 15, limit of 3% up to level 20, and limit of 5% level 20+.

• Companies cannot scrap buildings if the scrap would bring their asset value (building value) below 80% of their bond liability.

• Max bonds sold is based on your Building Value (BV).

STRATEGIES

Simia wrote a short strategy guide about how other players are using the bonds and what basic strategies you can employ.

Helpful articles from our local newspaper The Sim Companies Times:

How The Static Bond Market Leaves Lenders Pinched

The Play is… Bonds! Issue Bonds!

Buying Bonds: Good Idea?

Free from Bondage

Issuing Bonds and Good Debt

Why Bonds?

Using Bonds for Consistent Growth

The name is Bonds, James' Bonds

Why Bond Markets Fill Up During Recessions and Look Empty During Booms