Spotlight On: Severn Trent's 10-year bond

The deal

Water company Severn Trent has launched an RPI-linked 10-year Sterling bond.

Good points

The bond will pay interest semi-annually at 1.3 per cent a year adjusted to take account of changes in the inflation rate. After the 10-year term, the full value of the bond will be repaid.

Bad points

This is an investment. If the bond falls in value investors needing to sell before 10 years would lose out. Also if the company were to go bust, bondholders would not be repaid.

Conclusion

These retail bonds are becoming more common – Tesco launched one recently, for instance – as companies seek new ways to raise money. But investors need to be aware of the risks and be confident of the company they're backing.