Sales Certificates - Frequently Asked Questions
How do you determine the Percent of Sales?
The percent of sales required to service an issue is the total amount of the issue divided by the present value of the sales over the term of the issue. It requires that both the issuer and investor have much the same view of the discount rate and sales forecast.
How do you determine the appropriate number of Certificates?
Divide the value of the "issue amount" by 100*.
How do you price the Initial Public Offering?
Set the initial price at 100*; if the market agrees with both the discount rate and the sales forecasts used, the IPO should sell out at a price of approximately 100 per Certificate.
Who represents me in dealing with the issuer?
During the IPO, your broker deals with the underwriter who represents the issuer. After the IPO, the Trustee of the issue, according to the indenture, calculates, collects and distributes the revenues owed to the investors on the issue's Registrar's books based on the issuing firm's reported sales.
Why should I invest in Sales Certificates?
You should do so if a high cash flow security, with a return that is directly and transparently related to a firm's sales, fits your investment needs; remembering, of course, that the issue becomes worthless at maturity.
Can I Avoid Having My Investment Become Worthless at Maturity?
Investors can purchase sufficient zero coupon Treasury Bills, maturing at about the same time as the Sales Certificates mature, so that the face value of the maturing Treasury Bills will equal the value of the original investment in Sales Certificates.
What happens if the issuing firm merges with, or is taken over with another firm?
The terms of the issue will be reset taking into consideration the differences in size of the respective firms, the differences expected in their sales growth and the term remaining for the Certificates.
Can charities issue Sales Certificates based on their revenues?
Yes, as long as they are willing to abide by the terms of the standard trust indenture and investors believe that the charity's fund raising efforts will not be relaxed given the capital infusion.
* or by the price of similar or competing instruments such as debt issues.
