8. Intro to Bonds Flashcards
What legislation defines MM as Regulated Market for 85(2)
Prospectus Directive
How long before intended approval date of prospectus must prospectus be approved, if ADMITTING to trading for first time
20 WD
3 key docs to issue a eurobond, listed or not
Agent docs (TD/FAA), deed of covenant and deed of guarantee
How is coupon payable on bond
% of par value
What programme can be used to reduce time spent setting up bond
MTN Programme
When is a deed of guarantee required
If issue is guaranteed
Why is it time-consuming to list bonds
DD + drafting prospectus from scratch
What does a deed of covenant enable BHs to do
Allows BH to claim proportion of bond from I
When will Listing Particulars be used - what market
PSM
Who does T represent
BHs
What is the issue with having FA in a secured bond, to do with clawback provisions
Every time BH changes, debenture would be renewed, so ‘relevant period’ for clawback goes back to 0 - could ALWAYS clawback security
How many stages of issuing eurobond
6
Legal ownership of a bearer bond is transferred how
By delivery
What DoC does T have under CL
DoC to BHs in exercising its powers
What is the Quoted Eurobond exemption
Interest can be paid free of withholding tax
How does listing improve investor confidence
Requirements of listing gone through re: disclosure
Provision where annexes can be found in PR
PR App 3
What is a wholesale offer of bonds
Minimum denomination is at least €100k
Why are bonds more marketable than loans
Must be freely transferable to be listed, and v marketable in any case if good rating
What is a convertible bond
Can be exchange for shares in future
What does 87A FSMA require
Disclose necessary info for investor to make informed assessment
Stages of issuing eurobon
Mandate, DD, launch, Offering Doc, signing and closing
Why is it faster for a bond issue if issuer is experienced
existing disclosure doc for DD + MTN Programme can be used potentially
When is there a higher disclosure burden - retail or wholesale bond issue
Retail
What provision generally leads to whether summary required or not
PR 2.1 (2.1.4 + 2.1.3)
What party is REQUIRED up until bond’s maturity
Fiscal Agent OR trustee
What is the benefit of reaching institutional investors through listing
They generally have to hold most/all of investment in listed securities
What provision in FSMA allows for passporting of prospectus
87H
Advantage of T for BH
DoC to BH + T must treat all BHs equitably, reassuring for convertible/complex bonds, can call EoD, more marketable, single professional entity
Who acts as trustee - what entity
Professional trust corporation
How many apps to admit to trading on MM
2 - one to FCA and one to LSA
Which 85 test is likely to apply
85(2) - no exemption
What is the ‘mandate’ stage of issuing eurobond
Issuer appoints LM under ‘Mandate Letter’
Who does FA represent
Issuer
Why are loans generally more confidential than bonds
Fewer docs, fewer parties, no need to disclose to market for interest
Why are bonds more public than loans
Have to disclose info as part of marketing - especially if listed
What prospectus test is unlikely to be triggered for bonds + why
85(1) - 102B satisfied, but 86(1) exemption as sophisticated investors
What is Offering Doc used for
Marketing
Why is it easier to get larger sums through bonds
Lower risk
Why do bonds require issuer to have a good credit rating
If bad, less marketable, so higher interest
What do the pros of listing make Eurobonds
More marketable, so lower interest
Where is ‘offer to the public’ defined for 85(1)
102B
When will T usually call EoD
If instructed to do so by BHs
Why is FA cheaper
Fewer docs, lower fees, no separate legal advice, and no need for PPA
Cons of listing
Cost + time-consuming
How do you know no summary required for wholesale bonds
PR 2.1.3
What will issuer have to prove in order to not have to disclose required info in prospectus
Minor importance, seriously detrimental or contrary to public interest, and not likely to mislead
Who conducts DD
LM’s S’s
What kind of issue is it considered if listing on PSM - retail or wholesale
Wholesale
Benefit of listing on PSM
Does not have to produce prospectus, not comply w/ PRs
What is the implication of there being less of a relationship between BH and issuer?
Harder to negotiate waiver of terms, for example
Advantage of having T for issuer
Increased marketability and single professional entity
What is another impact of having sub-investment grade bonds, in terms of pool of investors
Most financial institutions cannot hold sub-investment grade bonds
What party will there always be in bond issue - investment bank
Lead manager
Legal ownership of registered bond is transferred how
By registration
How are bonds bought and sold - method
Electronic exchanges
How do you sue I if T appointed
Through T
Two different kinds of bonds, which determine which Annexes apply for disclosure O in prospectus
Retail or wholesale
When will prospectus be used - what market
MM
Who holds a global bond
Common depositary of all the clearing systems
4 things that will make bond issue complete faster
Issuer experienced, bonds not listed, PVB and investment grade
Who appoints T
Issuer
What provision in FSMA states that if listing on PSM, LP required + must be approved by FCA
79 FSMA
When is it likely that a bond issue will be guaranteed
If not investment grade
What is the ‘Quoted Eurobond exemption’?
Allows interest to be paid gross to UK insurers
How does T get its powers
Trust deed + CL
Why does 85(2) not apply to PSM
PSM is not a regulated market
What is included in Confirmation to Managers
Key terms of their commitment, e.g. who Ms are, UW terms, commercial terms
What happens at the closing stage of issuing eurobond
Bonds + payment transferred
What Annex is required for prospectus if issue if guaranteed
Annex VI
What does a negative pledge for a bond usually say
New BHs to hold same rights
What happens at launch of bond issue
Confirmation to Managers sent to co-Ms, and co-Ms then seek investors
What is a retail offer of bonds
Minimum denomination is less than €100k
Advantage of having FA for BH
Can sue I directly
What does a bond’s credit rating show?
Risk
What role does lead manager have
Adviser to issuer on issue procedure [+ listing if relevant]
Why is FA NOT an option if secured bond
FA = I’s agent, and avoids clawback provisions in insolvency
On what markets are bonds bought and sold
Debt capital
What function does T NOT perform that FA does
T does NOT administer payments
Roles of FA
Administering payment of interest + principal, as well as some admin functions
What is the Subscription Agreement
Ms agree to be liable on J&S basis + covers issues e.g. CPs, price, R&Ws given by issuer
Whose interests does ICMA represent
Investors
What is the benefit of T being a single professional entity for issuer
Prevents multiple actions and more flexible
What is par value
Value of the loan to be paid back
Why is having T for complex/convertible bonds reassuring for BHs
T has investigative and monitoring powers
Definition of eurocurrency
Currency held outside of country of origin
Wh is a quasi-regulator of debt capital markets
ICMA
Cons of bonds
Requires good credit rating, more public, more regulation, higher set-up costs, can be time-consuming, and less of relationship w/ BHs
What two kinds of ‘Offering Doc’ can there be
Prospectus or Listing Particulars
When can bonds be very quick to set up
Plain vanilla + for fee + unlisted - max week
What is app to LSE when listing for
For Admission to Trading
What is the Agreement among Ms
Deals w/ liability & Os between Ms, repeats J&S basis + how much each M subscribed for
By when must Ms receive final draft of Subscription Agreement and Agreement among Ms
2 WD before signing
Who acts as Fiscal Agent
Bank
What is it called if bond has no repayment date
Perpetual bond
Why are there higher set-up costs for bonds
More parties, docs and regulations to comply with
Some pros of bonds over loans
Wider pool of investors, marketable, cheaper financing, more flexible, better for larger sums, longer maturity, can be v quick and tax exemptions
Why do bonds generally have cheaper financing costs than loans
Spreading risk out + marketable + fixed rate = lower interest
Once bonds are listed, what Os apply to issuer
Continuing Os
When is FA more likely - what kind of bond
PVB, unless new issuer of bonds
What provision allows application to FCA for exception to disclosure in prospectus if needed
PR 2.5.2R
What is ‘coupon’
Interest
Why is it faster for bond issue if not listing
No prospectus + no approval from LSE/FCA
What LR does issuer listing bonds on PSM have to comply w/
LR 4
Where is the reasonable investor test in statute
87A FSMA
What provision states that prospectus must be approved before admission
85(2) FSMA + PR 3.1.10
Two kinds of bonds, in regard to how legal ownership can be transferred
Bear and registered
Starting position for disclosure Os in prospectus
87A FSMA
What rating is considered speculative regarding B’s capacity to repay
BBB-
Regulation on loans?
Very few if any regs apply
Provision on content of prospectus
PR 2.3.1
What Annexes apply in prospectus for retail bonds
Annex IV, V and XXII
What is it called when a bond is represented in paper certificate form
Definitive bond
What Annexes apply in prospectus for wholesale bonds
Annex IX and XIII
What powers does T have
Wide powers to act on behalf of BHs, e.g. call EoD
When is a deed of covenant required
No T + bonds in global form
How does FA get its powers
FA Agreement
What is the tax exemption applicable for bonds
‘Quoted Eurobond exemption’
Why is PPA required if T used
T cannot administer payments
Why does having T increase marketability
Increases confidence of BHs
What is the max maturity for loans, generally
7 years
Provision on format of prospectus (e.g. single or separate)
PR 2.2
When is the closing stage of issuing eurobond
1/2 days after signing
What is the MTN Programme
If large C issuing bonds frequently, agrees w/ bank for bank to manage future bond issues up to £X w/ a base prospectus
What is a global bond
Represents total amount of bond
Why is it costly to list bonds
Legal fees considerably higher + FCA and LSE both charge fee
When is the bond repaid
At maturity
Definition of eurobond
Either bond denominated in eurocurrency or domestic but sold internationally
How long is prospectus valid for after approval + provision
12 months, PR 5.1.1
Difference between coupon on bonds and interest on loans
More flexible for bonds, and usually fixed rate
When might bonds be time-consuming to set up
If complex bond or listed
How are bonds generally more flexible than loans
Not an absolute negative pledge and longer GP for non-payment
Advantage of having FA for issuer
DoC owed to I, cheaper
What two docs are signed during issue of eurobond process
Subscription Agreement and Agreement among Ms
3 pros of listing bonds
Investor confidence, reach institutional investors and Quoted Eurobond exemption
Who draws up Offering Doc
LM
What provision outlines approval process for prospectus
PR 3.1
Why do bonds offer wider pool of investors than loans
Not limited to banks + minimum denomination can be low
What additional party will be required if T being used
Principal Paying Agent
Two kinds of bonds (in terms of features)
Plain vanilla and convertible
When is FA NOT an option
If secured bond
What provision outlines docs to submit for approval of prospectus
PR 3.1.-1
What is app to FCA when listing for
Admit to Official List
Is the common depositary the legal owner of the global bond?
No - only the custodian
First document signed between issuer and Managers when issuing bond
Confirmation to Managers
