Debt Finance Flashcards

Question

Which of the following is not a component of the interest rate usually paid by a corporate borrower on a loan? Fixed rate Relevant risk-free rate Margin

Answer 1

Fixed rate Correct Correct. A fixed rate of interest is rare in corporate lending as the rate of interest tends to be higher than the floating rate available to a borrower and so is less attractive.

Answer 2

On the last day of each interest period Correct

Answer 3

The relevant risk-free rate Correct Correct. The relevant risk-free rate is what is added to the margin to make up the overall floating interest rate payable by a borrower.

Answer 4

Any creditor of the borrower or any of its subsidiaries becomes entitled to declare any financial indebtedness due and payable before the date originally agreed because of an event of default under the agreement creating financial indebtedness between the creditor and the borrower (or any of its subsidiaries) Correct. This is pure cross default wording where the cross default event of default is triggered if the borrower defaults under an agreement it has with another creditor, irrespective of whether that other creditor takes any action in relation to that default. The “any financial indebtedness of the borrower or any of its subsidiaries is declared to be or otherwise becomes due and payable prior to the date originally agreed as a result of an event of default under the agreement creating financial indebtedness between the creditor and the borrower (or any of its subsidiaries)” wording is cross acceleration wording as it requires a further step to be taken by that other creditor before the cross default event of default is triggered - the other lender has to accelerate or place their loan on demand. The “any financial indebtedness of the borrower or any of its subsidiaries is not paid when due nor within any originally applicable grace period” wording is cross default wording but is not pure cross default wording as it is limited to a non-payment event of default and doesn’t apply to any other event of default that may occur under the other creditor’s loan agreement. It is much narrower in scope than pure cross default wording.

Answer 5

Illegality Correct. Illegality of the lender lending is usually a mandatory prepayment event rather than an event of default because the borrower has no control over it and it would not be fair for the bank to expect the borrower to take the risk of it, especially as an event of default could trigger cross-default in the borrower’s other loan agreements (if any). Unlawfulness, where it is unlawful for the borrower/guarantor to perform its obligations, however, is an event of default because, whilst it may be outside the borrower/guarantor’s control, it is an issue of risk allocation – the lender will insist the risk stay with the borrower in such a situation. Breach of financial covenants is an event of default because it would indicate possible creditworthiness issues with the borrower and the borrower should be able to operate within these pre-agreed financial parameters. Material Adverse Change is a catch-all event of default and a requirement of most lenders’ internal credit committees. incorrect Breach of financial covenants Incorrect. Breach of financial covenants is an event of default because it would indicate possible creditworthiness issues with the borrower and the borrower should be able to operate within these pre-agreed financial parameters. Please revisit this element, in particular the pages on mandatory prepayment events. Material Adverse Change Incorrect. Material Adverse Change is a catch-all event of default and a requirement of most lenders’ internal credit committees. Please revisit this element, in particular the pages on mandatory prepayment events.

Answer 6

Insolvency. Correct. Insolvency is where an entity cannot pay its debts as they fall due. There is no availability for any grace period if insolvency is declared. A short grace period of 2-3 days is usually accepted in the non-payment event of default but only for non-payment due to technical or administrative reasons. A catch-all grace period is usually drafted into the breach of other obligations event of default for breaches of obligations which are capable of remedy. A grace period is given in the creditors’ process event of default to discharge the creditor’s process.

Answer 7

Security trustee fee. Correct Correct. The facts indicate that the loan will be syndicated and will be secured, which will therefore require a fee to be paid to the security trustee. Participation and arrangement fees are interchangeable terms and therefore no separate participation fee will be required in addition to the arrangement fee. No underwriting fee will be payable, since the facts indicate that the agent will not be underwriting the loan; it is being arranged on a best efforts basis.

Answer 8

The borrower will be required to provide representations on behalf of itself and its ‘Material Subsidiaries’, with such a definition covering subsidiaries A and B. Correct. This appears to be the most likely compromise position. Borrowers will typically be required to not only represent in respect of themselves, but also in respect of any ‘Material Subsidiaries’, since any key subsidiaries contributing to the group’s turnover or asset pool are likely to be relevant in the eyes of the syndicate. The threshold at which this is set will usually be commercially agreed, but the facts indicate that subsidiaries A and B not only contribute significantly to the group’s turnover but hold some key assets too. Less significant subsidiaries, such as subsidiary C, will likely be carved out of the definition to avoid overly burdensome requirements on the borrower. Whether the representations repeat or not will be a separate discussion, but the categorisation of subsidiaries as ‘Material Subsidiaries’ will not automatically carve them out of the repeating representations.

Answer 9

A subordination agreement between the syndicate and the existing subsidiary lender will help to protect the syndicate’s position. Correct. The syndicate lenders will be structurally subordinated to the lender at subsidiary level. The fact that this loan is unsecured is irrelevant, since the existence of the lending is the cause of the problem. Whilst obtaining a guarantee and/or security can improve the syndicate’s position, it would need to take any such guarantee and/or security from the subsidiary, not from the Company. By including protective drafting in the Company’s loan agreement (not the subsidiary’s loan agreement), the syndicate can also mitigate the risks

Answer 10

Potential Event of Default Correct Correct. There is no separate definition of a potential event of default in the LMA. Event of Default and Default are both defined in the LMA. Default is defined as being wider than an actual Event of Default – it includes an actual Event of Default but also includes an event or circumstance (specified in the events of default clause) which would (with the expiry of a grace period, giving of notice or the making of any determination under the Finance Documents) be an Event of Default – this is what we call a potential event of default although it is not separately defined as such in the LMA. So a potential event of default (although it is not separately defined) is a situation which would be an Event of Default but for the fact that the Event of Default has a grace period which the borrower is currently in, or, the Event of Default requires the giving of a notice or making of a determination which hasn’t happened yet.

Answer 11

Acceleration. Correct Correct. The acceleration clause gives the bank the option to demand immediate repayment of the loan and any outstanding interest and fees and this is known as acceleration. Cancellation of further lending obligations and drawstop (temporary suspension of further draw downs) are only relevant as options to the bank if the loan is an RCF or a term loan with undrawn tranches (not the case here as this is a fully drawn term loan). Enforcing security is only an option where the loan is secured (on the facts this loan is unsecured). Incorrect Enforcing security. Incorrect. Enforcing security is only an option where the loan is secured (on the facts this loan is unsecured). Please revisit this element, in particular the pages on a lender’s options following an event of default. Drawstop. Incorrect. Drawstop (temporary suspension of further draw downs) is only relevant as an option to the bank if the loan is an RCF or a term loan with undrawn tranches (not the case here as this is a fully drawn term loan). Please revisit this element, in particular the pages on a lender’s options following an event of default. Cancellation. Incorrect Incorrect. Cancellation of further lending obligations is only relevant as an option to the bank if the loan is an RCF or a term loan with undrawn tranches (not the case here as this is a fully drawn term loan). Please revisit this element, in particular the pages on a lender’s options following an event of default.

Answer 12

The duty to notify the syndicate lenders promptly if the Agent receives notice of a Default under the loan. Correct. This is wider than simply notifying the syndicate lenders if the Agent receives notice of an Event of Default as Default is defined more widely than Event of Default (see this element) to include an Event of Default and also what we refer to as potential events of default. The Agent also has the power to exercise any of the remedies under the Acceleration provisions of the events of default clause and the obligation to do so if instructed by the Majority Lenders.

Answer 13

All monies, debts and liabilities from time to time due, owing or incurred by the Borrower to the Lender. Correct. This is ‘all monies’ security where the secured liabilities are not limited to the amounts owed under the current loan agreement but are defined so as to cover future financing obligations between the parties as well. The advantage of ‘all monies’ security is efficiency in that, when secured lending takes place between the same parties in the future, the security document is already in place, as the original security document will cover the future lending (saving time and costs drafting another security document). The wording “all present and future liabilities and obligations of the Borrower to the Lender which are, or may become, due owing or payable under or in connection to the Loan Agreement” limits the secured liabilities to the amounts owed under this current loan agreement so this security document will not cover future lending between the parties. The wording “all present and future monies, obligations and liabilities from time to time owed or incurred by the Borrower to the Lender under or in connection with the Finance Documents” limits the secured liabilities to the amounts owed under this current loan. Finance Documents covers the loan agreement, any security documents, any guarantees and any separate fee letters i.e. all of the documentation relating to this loan only (not any future loan) so this security document will not cover future lending between the parties. incorrect All present and future monies, obligations and liabilities from time to time owed or incurred by the Borrower to the Lender under or in connection with the Finance Documents. Incorrect. The wording “all present and future monies, obligations and liabilities from time to time owed or incurred by the Borrower to the Lender under or in connection with the Finance Documents” limits the secured liabilities to the amounts owed under this current loan. Finance Documents covers the loan agreement, any security documents, any guarantees and any separate fee letters i.e. all of the documentation relating to this loan only (not any future loan) so this security document will not cover future lending between the parties. Please revisit this element, in particular the pages on secured liabilities. All present and future liabilities and obligations of the Borrower to the Lender which are, or may become, due owing or payable under or in connection to the Loan Agreement Incorrect Incorrect. The wording “all present and future liabilities and obligations of the Borrower to the Lender which are, or may become, due owing or payable under or in connection to the Loan Agreement” limits the secured liabilities to the amounts owed under this current loan agreement so this security document will not cover future lending between the parties. Please revisit this element, in particular the pages on secured liabilities.

Answer 14

A guarantee from a parent company. Correct Correct. A guarantee is quasi-security in that it only provides the lender with a contractual claim against the guarantor. Unlike security, quasi-security does not give the lender proprietary rights over the borrower’s assets. A legal mortgage over the borrower’s shares in its subsidiary is security rather than quasi-security because it gives the lender proprietary rights over the borrower’s asset – the shares – giving the lender rights in certain circumstances to take possession of or sell the asset. A floating charge over the borrower’s stock subsidiary is security rather than quasi-security because it gives the lender proprietary rights over the borrower’s asset – the stock – giving the lender rights in certain circumstances to take possession of or sell the asset. A legal assignment by way of security over the borrower’s contractual rights is security rather than quasi-security because it gives the lender proprietary rights over the borrower’s asset – the intellectual property – giving the lender rights in certain circumstances to take possession of or sell the asset.

Answer 15

The borrower defaults under the loan agreement. Correct Correct. The lender is able to enforce its security once the borrower defaults under the associated loan agreement. The lender can step in and take possession of the secured asset or sell the secured asset to repay any outstanding amount due on the loan. If the loan is guaranteed as well as secured, the bank does not have to pursue the guarantor for repayment first before it can enforce its security. The guarantee and the security are separate ways for the bank to try and get its money back if the borrower defaults under the loan agreement. The bank takes the security to protect itself and increase its chances of getting its money back if the borrower defaults under the loan agreement. The less creditworthy the borrower, the more likely the bank is to want to take security. However, the right to enforce the security is not triggered by the bank being concerned about the borrower’s creditworthiness.

Answer 16

A charge gives a proprietary interest in the asset. Correct. A charge is an equitable right which gives a proprietary interest in the asset, giving the lender the right to appropriate the charged asset and sell it to discharge the secured debt. There is no transfer of title to the asset.

Answer 17

A fixed charge. Correct Correct. A legal mortgage can’t be taken over future property – the asset must be owned by the charger when the security is created. A floating charge is a weaker form of security interest than a fixed charge as it allows the charger to deal with the asset freely as part of their business until the floating charge crystallises and it ranks behind a fixed charge on insolvency.

Answer 18

Registration of the chargee in the borrower’s register of members. Correct. To perfect a legal mortgage over shares a borrower holds in its subsidiary, the chargee needs an executed stock transfer form, registration of the charge in the register of members of the subsidiary (i.e. the company the shares are in, to show the chargee is now the owner of those shares) and new share certificates in its name, all of which make the chargee the legal owner of those shares, subject to the equity of redemption.

Answer 19

The second has priority because the first was not registered at Companies House within the time limit and so is void against other creditors. Correct. Priority between competing fixed charges is determined by the date of creation, subject to correct registration within the 21 day (from the day after the date the charge was created) time period. Here, the first fixed charge was not registered within the time limit and so is void against other creditors.

Answer 20

Corporate power and authority. Correct. The bank needs to check the PLC’s articles of association to see if there are any restrictions on it giving the security. Unlawful financial assistance is not an issue here because the legislation prohibits a PLC target company plus its subsidiaries and the PLC subsidiaries of a private company target from giving financial assistance but here the Target (the private company) is not giving financial assistance, only the bidder company is and they are not prohibited by the financial assistance legislation. Maintenance of capital is not an issue here as it is relevant if a subsidiary gives security or a guarantee for a loan made to its parent. On these facts, whilst the private company will become the PLC’s subsidiary, it is not giving security or a guarantee for the loan. Incorrect Incorrect. The unlawful financial assistance legislation prohibits a PLC target company plus its subsidiaries and the PLC subsidiaries of a private company target from giving financial assistance but here the Target (the private company) is not giving financial assistance, only the bidder company is and they are not prohibited by the financial assistance legislation. Please revisit this element and in particular the pages on points to consider when taking security. Maintenance of capital. Incorrect. Maintenance of capital is relevant if a subsidiary gives security or a guarantee for a loan made to its parent. On these facts, whilst the private company will become the PLC’s subsidiary, it is not giving security or a guarantee for the loan. Please revisit this element and in particular the pages on points to consider when taking security.

Answer 21

A fixed charge over shares. Correct. A fixed charge over shares is only an equitable security interest and does not transfer legal title to the shares. Beneficial interests cannot be noted on the register of members of the company whose shares have been charged. A charge by way of legal mortgage over unregistered land triggers compulsory first registration of the land and mortgage and the security will be entered on the charges register of the property at the Land Registry (once the title has been registered). Security over intellectual property, such as registered trademarks, is registered at the Intellectual Property Office (here, in the register of trademarks). Mortgages over ships are registered with the Registry of Shipping and Seamen.

Answer 22

The misrepresentation event of default will be triggered when the no litigation over £200,000 representation is repeated in a few days’ time. Correct. The repeating representation that there is no litigation over £200,000 will be repeated when the second tranche of the loan is drawn down. As the representation will be incorrect, a misrepresentation event of default will be triggered on its repetition. The non-payment event of default will not be triggered because the borrower, on the facts, has not missed a payment to the bank. The £1 million being claimed is not money due to the bank under the loan agreement. The cross-default event of default will not be triggered because, on the facts, the borrower had not got an event of default under another of its loan agreements. The £1 million claim is in relation to patent infringement, it has nothing to do with the borrower breaching another of its loan agreements. The creditors’ process event of default will not be triggered because, on the facts, no remedy is being exercised by a creditor over an asset of the borrower (e.g. there is no execution of a judgment debt here). The serving of a claim form does not fall within creditors’ process.

Answer 23

The bank will be entitled to call an event of default for breach of other obligations. Correct Correct. The breach of the no disposals undertaking, if the borrower sells the warehouse, would trigger the other obligations event of default. The bank will not be entitled to exercise drawstop because, on the facts, the loan is a fully drawn term loan and there are no outstanding drawdowns to temporarily suspend. The bank will not be entitled to call for mandatory prepayment on these facts – mandatory prepayment events are things such as change of control of the borrower or illegality of the lender to lend and they are not relevant on these facts. The bank will not be entitled to call a potential event of default. A potential event of default is where an event of default has been triggered but it contains a grace period which is running. On the facts, the relevant event of default does not contain a grace period (even if it did, arguably this breach would not be capable of remedy) so a potential event of default is not relevant on these facts.

Answer 24

The bank can call a potential event of default and exercise drawstop. Correct Correct. The non-payment event of default usually has a 2 or 3 day grace period for non-payments caused by technical errors such as on these facts. Whilst the grace period is running the borrower is in a potential event of default and the only remedy available to the bank is drawstop (relevant on these facts as the loan is an RCF). The bank cannot call an event of default as this situation would only be a potential event of default. The bank is also limited, in the options available to it, in a potential event of default situation.

Answer 25

‘Ruling off’. Correct. The effect of the rule in Hopkinson v Rolt is that if a borrower has a secured RCF with Bank A but then borrows a secured loan from Bank B and Bank B notifies Bank A, repayments made by the borrower to Bank A will reduce the amount for which Bank A has first ranking priority. ‘Ruling off’ the borrower’s account with Bank A when Bank A receives notice of the subsequent charge means that the amount outstanding to Bank A, on the date Bank A receives notice of Bank B’s security, keeps its first ranking security. incorrect Tacking’. Incorrect Incorrect. Whilst ‘tacking’ allows a lender to secure further advances under existing security which will rank in priority to any subsequent security created in favour of another lender (i.e. defeating the rule in Hopkinson v Rolt), it is not the answer here because the right to ‘tack’ is not included in the debenture. It is instead a statutory right – s.49(3) Land Registration Act 2002. (NB that statutory right to ‘tack’ only applies to security over registered land). Please revisit this element, in particular the pages on loss of priority to subsequent mortgagees. ‘Continuing security’. Incorrect. If the security is described as ‘continuing’, it will not be discharged by repayments of the loan but will instead continue for the entire term of the loan regardless of any intermediate repayment and re-borrowing. This is useful to ensure the full amount of the RCF remains secured despite repayments and reborrowing but it does not enable the bank to retain first ranking priority as against subsequent mortgagees – the issue from Hopkinson v Rolt. Please revisit this element, in particular the pages on loss of priority to subsequent mortgagees. ‘Appropriations’. Incorrect. The appropriations clause overrides the rule in Claytons Case (in the absence of agreement to the contrary, repayments go to pay earlier loans first), allowing the bank to apply repayments to a more recent loan if they wish. Please revisit this element, in particular the pages on loss of priority to subsequent mortgagees.

Answer 26

A definitions clause setting out all of the definitions from the associated loan agreement. Correct Correct. Terms defined in the associated loan agreement will usually have the same meanings in the debenture, to avoid having to repeat all defined terms in the debenture. There will be wording in the debenture to the effect that terms defined in the loan agreement (which will be defined in the debenture) will have the same meaning when used in the debenture, unless expressly defined in the debenture. The debenture will contain undertakings (for example a negative pledge and a no disposals undertaking) to protect the secured assets and also undertakings to maintain and insure the secured assets. The debenture will contain provisions re: enforcement of security, expressly setting out when and how the chargee’s right to enforce the security arises – on an Event of Default. This is the case even though common law and statute provide the charge with implied rights of enforcement. The debenture will contain provisions re: giving notices to third parties as where security is taken over bank account balances or contracts for example, the chargee will usually require the chargor to give notice to the bank / the contract counterparty notifying them of the chargee’s interest. It is a statutory requirement for a legal assignment by way of security to give notice and it is best practice to do so for a fixed charge as well.

Answer 27

Repay/ release and Clayton’s Case. Correct. Repay/ release – if the borrower repays an RCF (without any agreement to the contrary, the repayment will be used to pay the oldest debt – the RCF – first) and the security will be released in respect of that amount but then the borrower can re-draw down the money (this time unsecured). Clayton’s Case, which states that in the absence of agreement to the contrary repayments are used to repay the oldest debt first, is also an issue because the bank would prefer the secured term loan to be repaid first given its security is unhardened (still within the two year period when it can be challenged), whereas the RCF’s security is hardened.

Answer 28

The borrower’s security would breach the negative pledge in Bank A’s loan agreement and both the loan with Bank B and the subsidiary’s guarantee would breach the no further financial indebtedness covenant. Correct. The negative pledge is a general undertaking prohibiting the creation of further security. The no further financial indebtedness covenant restricts further financial indebtedness, which includes borrowing and guarantees. incorrect Both the borrower’s security and the subsidiary’s guarantee would breach the negative pledge in Bank A’s loan agreement and the loan with Bank B would breach the no further financial indebtedness covenant. Incorrect. Please ensure you are clear on the restrictions in a loan agreement that can prohibit giving security, giving a guarantee and entering into a loan. Please revisit the element on nature and purpose of security.

Answer 29

The guarantee from the PLC and the security from the PLC’s subsidiary. Correct. The financial assistance legislation prohibits a PLC target company and any of its subsidiaries (public or private) from giving financial assistance (which includes security and guarantees) to the bank. The security from the borrower is not caught by the financial assistance legislation as it does not prohibit the borrower from giving financial assistance. incorrect The security from the borrower, guarantee from the PLC and security from the PLC’s subsidiary. Incorrect. The security from the borrower is not caught by the financial assistance legislation as it does not prohibit the borrower from giving financial assistance. Please revisit the elements on nature and purpose of security and perfection and registration of security and also your materials from SQE1 Business Law Preparation

Answer 30

The subsidiary’s register of members and the Intellectual Property Office’s register of patents Correct Correct. In addition to registration at Companies House, the legal mortgage over shares in the chargor’s subsidiary needs registering in the subsidiary’s register of members (as the chargee is now the legal owner of the shares in the subsidiary, subject to the equity of redemption) and the fixed charge over the chargor’s patents needs registering at the Intellectual Property Office in the register of patents there. Remember, as a legal mortgage transfers legal title to the shares to the mortgagee (i.e. the chargee), this transfer must be registered in the register of members of the company whose shares have been mortgaged (N.B. NOT the register of shareholders of the company creating the security over those shares (the chargor)). The fixed charge over shares the chargor owns in an unrelated UK company is a beneficial/ equitable interest and so cannot be noted on the register of members of the UK company (that would only happen if the chargee was the owner of the legal title to the shares). incorrect The subsidiary’s register of members, the UK company’s register of members and the Intellectual Property Office’s register of patents. Incorrect Incorrect. The fixed charge over shares the chargor owns in an unrelated UK company is a beneficial/ equitable interest and so cannot be noted on the register of members of the UK company (that would only happen if the chargee was the owner of the legal title to the shares). Please revisit the element on perfection and registration of security. incorrect The chargor’s register of members and the UK company’s register of members. Incorrect. Remember, as a legal mortgage transfers legal title to the shares to the mortgagee (i.e. the chargee), this transfer must be registered in the register of members of the company whose shares have been mortgaged (N.B. NOT the register of shareholders of the company creating the security over those shares (the chargor)). The fixed charge over shares the chargor owns in an unrelated UK company is a beneficial/ equitable interest and so cannot be noted on the register of members of the UK company (that would only happen if the chargee was the owner of the legal title to the shares). Please revisit the element on perfection and registration of security.

Answer 31

Yes, the bank can do this because the ‘appropriations’ clause allows the bank to apply repayments to whichever of the borrower’s loans it wants. Correct. The appropriations clause overrides the rule in Claytons Case (in the absence of agreement to the contrary, repayments go to pay earlier loans first), allowing the bank to apply repayments to a more recent loan if they wish.

Answer 32

The further assurances undertaking and the power of attorney in the debenture. Correct. The further assurances clause is an undertaking from the chargor to take any steps and execute any documents the chargee may require to create, perfect and protect any security, allowing the chargee to require the chargor to give a charge by way of legal mortgage over the new warehouse premises. The power of attorney enables the chargee to accomplish this by signing documents as attorney for the borrower if the borrower refuses. These clauses appear in the debenture not the loan agreement.

Answer 33

‘Continuing security’ wording. Correct Correct. If the security is described as ‘continuing’, it will not be discharged by repayments of the loan but will instead continue for the entire term of the loan regardless of any intermediate repayment and re-borrowing. The ‘appropriations’ wording is relevant where the same bank has entered into more than one loan with the same borrower and it allows the bank to override the rule in Clayton’s Case and to apply repayments to a more recent loan first (rather than the earliest loan first). The ‘all monies’ wording means that the security will cover subsequent lending arrangements between the borrower and bank. The ‘ruling off’ wording is relevant where there are two (or more) banks (not the case here) and it keeps first ranking priority for the amount of the debt owed to the first bank on the date they receive notice of the security granted to the second bank.

Answer 34

The directors will need to provide a statement that the company is unable to pay its debts and a monitor will need to provide a statement that it is likely that a moratorium for the company would result in the rescue of the company as a going concern. The moratorium is under the Corporate Insolvency and Governance Act 2020. Correct. The directors will need to provide a statement that the company is unable to pay its debts. A monitor (who will be an insolvency practitioner) will need to provide a statement that it is likely that a moratorium for the company would result in the rescue of the company as a going concern. This is under the Corporate Insolvency and Governance Act 2020. incorrect The monitor will need to provide a statement that the company is unable to pay its debts and the directors will need to provide a statement that it is likely that a moratorium for the company would result in the rescue of the company as a going concern. The moratorium is under the Corporate Insolvency and Governance Act 2020. Incorrect Incorrect. This is the wrong way round. It is the directors not the monitor who needs to provide the statement that the company is unable to pay its debts, and it is the monitor not the directors who needs to provide the statement that the moratorium will result in the rescue of the company as a going concern. The moratorium is under the Corporate Insolvency and Governance Act 2020.

Answer 35

A restructuring plan is more powerful for the company because it can compromise the claims of the bank as secured creditor whereas a CVA cannot. Correct Correct. A restructuring plan pursuant to Part 26A of the Companies Act 2006 can compromise the rights and claims of secured creditors. A CVA under sections 1 to 7 of the Insolvency Act 1986 cannot.

Answer 36

The company should seek to implement a restructuring plan as this will bind the bank and the suppliers. Correct. A restructuring plan under Part 26A of the Companies Act 2006 can compromise the rights of secured creditors (the bank) but this will require court approval. A company voluntary arrangement (CVA) under section 1 to 7 of the Insolvency Act 1986 cannot compromise the rights of secured creditors (the bank) but only unsecured creditors (the suppliers).

Answer 37

Yes the directors are able to apply for an Administration order but will need a board resolution and will also have to notify the bank. Correct Correct. The directors of the company are able to apply for an administration order with a board resolution and will need to file notice of intention to do so at court. The directors will also have to notify the bank of their intention as it likely that the bank will be a Qualifying Floating Charge Holder (QFCH).

Answer 38

The bank will be a Qualifying Floating Charge Holder (QFCH) and does not need the consent of the court to appoint an Administrator. Correct. The bank will be a Qualifying Floating Charge Holder (QFCH) as it has taken fixed and floating charges over all the company’s assets and therefore it can use the out of court procedure to appoint an Administrator of its choice without needing the consent of the court. incorrect The bank will be a Qualifying Floating Charge Holder (QFCH) but will need the consent of the court to appoint an Administrator. Incorrect. The bank will be a Qualifying Floating Charge Holder (QFCH) as it has taken fixed and floating charges over all the company’s assets and therefore it can use the out of court procedure to appoint a Administrator of its choice without needing the consent of the court.

Answer 39

No, the company cannot appoint an administrative receiver as the debenture was granted after 15 September 2003. Correct. Pursuant to the Enterprise Act 2002 (section 250) it is not possible to appoint an administrative receiver after 15 September 2003 and the debenture was executed after this date on 14 December 2003.

Answer 40

The bank should be paid first and then the employees up to £800 per employee for the last four months' pay and then HMRC. Correct. The order of priority in an insolvent liquidation is for fixed charge creditors (the bank) to be paid ahead of preferential debts (employees and HMRC). For insolvencies after 1 December 2020 there are two tiers of preferential debts. The first tier consisting of employee pay due in the 4 months before insolvency up to £800 per employee and certain contributions to an occupational pension scheme. The second tier is certain debts due to HMRC (PAYE, employee national insurance contributions and VAT) within prescribed periods. Incorrect The employees should be paid first up to £800 per employee then HMRC then the bank. Incorrect. The order of priority in an insolvent liquidation is for fixed charge creditors (the bank) to be paid ahead of preferential debts (employees and HMRC). For insolvencies after 1 December 2020 there are two tiers of preferential debts. The first tier consisting of employee pay due in the 4 months before insolvency up to £800 per employee and certain contributions to an occupational pension scheme. The second tier is certain debts due to HMRC (PAYE, employee national insurance contributions and VAT) within prescribed periods.

Answer 41

The liquidator's fees should be paid first, then the bank, and then the costs of paying the new security firms and the litigation fees of suing the old security firms. Correct. The order of priority in an insolvent liquidation is for the insolvency office holder's costs to be paid first, then fixed charge creditors (the bank), and then other costs and expenses of the liquidation (costs of paying the new security firms and litigation costs against the old security firms). Incorrect The liquidator's fees should be paid first, then the costs of paying the new security firms and the litigation fees of suing the old security firms, and then the bank. Incorrect Incorrect. The order of priority in an insolvent liquidation is for the insolvency office holder's costs to be paid first, then fixed charge creditors (the bank), and then other costs and expenses of the liquidation (costs of paying the new security firms and litigation costs against the old security firms).

Answer 42

The property investor should be paid first, then the bank, then the suppliers. Correct. The fixed charge creditor (the property investor) should be paid first, then the floating charge creditor (the bank), and then the unsecured creditors (the suppliers). incorrect The suppliers should be paid first, then the bank, then the property investor. Incorrect Incorrect. The fixed charge creditor (the property investor) should be paid first, then the floating charge creditor (the bank), and then the unsecured creditors (the suppliers).

Answer 43

The company does not need to notify the bank, nor does it need to seek court consent in a formal hearing. Correct. Under a pre-insolvency moratorium the company does not need to notify the bank who holds a QFCH. The company also does not need court consent in a formal hearing as all it needs to do is to file some documents at court. incorrect The company does need to notify the bank as the bank is a QFCH but does not need to seek court consent in a formal hearing. Incorrect Incorrect. Under a pre-insolvency moratorium the company does not need to notify the bank who holds a QFCH. The company also does not need court consent in a formal hearing as all it needs to do is to file some documents at court.

Answer 44

The bank cannot crystallise the floating charge it has over the pure electric vans. Correct. A pre-insolvency moratorium prohibits the crystallisation of a floating charge into a fixed charge. Incorrect The bank cannot crystallise the floating charge it has over the pure electric vans unless 20 business days has passed since the pre-moratorium. Incorrect Incorrect. A pre-insolvency moratorium prohibits the crystallisation of a floating charge into a fixed charge. The initial moratorium period of 20 business days has no bearing on this.

Answer 45

The farm company cannot withhold supplying the supermarket and can only terminate the contract for non-payment of a post-moratorium debt Correct. A supplier cannot refuse to supply goods and services due to a company not paying a pre-moratorium debt. A supplier cannot also terminate the contract unless the debt is post-moratorium. incorrect The farm company cannot withhold supplying the supermarket but can only terminate the contract for non-payment of a pre-moratorium debt. Incorrect. A supplier cannot refuse to supply goods and services due to a company not paying a pre-moratorium debt. A supplier cannot terminate the contract unless the debt is post-moratorium.

Answer 46

The borrower must consent to the assignment Correct Correct. The borrower’s consent is not required for an assignment to be a legal assignment but notice of the assignment must be given to the borrower.

Answer 47

In a sub-participation the existing lender and the new lender enter into an agreement creating rights and obligations between them. Correct Correct. Sub participation does not transfer any rights or obligations from the existing lender to the new lender. Instead the existing lender and the new lender enter into a separate agreement creating new rights and obligations between them.

Answer 48

The borrower and the new lender will need to incur the time and costs involved in putting new security in place. Correct Correct. This is not a disadvantage of sub-participation. The borrower will not enter into new security with the new lender. It is normal practice for the new lender to rely upon the existing lender exercising its rights under the existing security on its behalf.

Answer 49

Creditors of the bank Correct Correct. The capital adequacy rules are designed to protect the bank’s creditors by ensuring that the bank has sufficient capital to absorb the likely losses from borrowers defaulting on their loans

Answer 50

The lender may be able to sell the loan but most probably at a discount given the increased risk of the borrower defaulting. Correct. Although it is unlikely that the bank will be able to sell the loan for its full face value it may be able to sell the loan at a discount often to a specialist firm which will buy and manage the loan in the hope of eventually being repaid more by the borrower than they had to pay to the original lender to buy the loan.

Answer 51

The amount of the loan Correct. The amount of the loan has no bearing on the method of transfer

Answer 52

Novation or LMA assignment or sub-participation or risk-participation could all reduce the large bank’s risk. Correct Correct. All four transfer methods, novation or LMA assignment or sub-participation or risk-participation could all reduce the large bank’s risk, and it is possible to transfer part of the loan under all four methods.

Answer 53

Since local bank does not need the borrower’s consent for sub-participation, but it will for novation, sub-participation is the better option. Correct. Local bank does not need the borrower’s consent for sub-participation. Local bank will need borrower’s consent for novation as overseas bank is not an existing member or affiliate of the original syndicate. Sub-participation is therefore the better option.

Answer 54

LMA assignment Correct Correct. The security will need to be assigned as the Japanese bank is not in a jurisdiction that recognises English law trusts. LMA assignment will be preferred over novation as the high street bank will need borrower’s consent to transfer the loan to the Japanese bank as it is not an existing member or affiliate of the original syndicate. The facts however state that the borrower knows the Japanese bank and has no objection to the transfer to it.

Answer 55

The marketability of the bonds Correct Correct. Marketability of the bonds is a fundamental concept, as it is this which ensures that the bonds are attractive to investors since they know they can easily sell the bonds, making bonds a comparatively low risk and attractive investment. The other statements are incorrect. Bonds are issued with or without security, with fixed, floating or variable rates of interest and a wide range of maturity dates to suit the differing needs of the wide variety of investors, but none of these factors are as important as marketability for an investor.

Answer 56

The corporate issuer of listed bonds would expect to pay a lower rate of interest than under a syndicated loan, because the investment risk taken by the bond investors is lower than that taken by the lenders in a syndicated loan. Correct Correct. The broader investor base for bonds (which is not just limited to banks but includes institutional investors) and the minimum denomination of securities (which is smaller than the smallest participation that can be taken in a syndicated loan) means that the risk associated with a particular bond issue is spread out over a wider number of investors. Also, since investors know that bonds are easily tradeable, investors know that they can realise their investment easily without having to wait until the maturity date. This reduces the investment risk for them and, as a result, the interest paid by the issuer is lower. The other statements are incorrect. As the number of investors in a syndicated loan is generally smaller than in the case of bonds, the borrower is more likely to be able to maintain a relationship with its investors in a loan context. Early redemption of the bonds is not a reason why an issuer could expect to pay a lower rate of interest than in a syndicated loan. Capital market debt can typically be borrowed at fixed rates of interest and with less onerous undertakings than those typically in syndicated loan agreements.

Answer 57

The Buyer is more likely to use a syndicated loan rather than a listed bond issue to raise the acquisition finance, but following completion of the acquisition may re-finance the loan using a bond issue to take advantage of lower interest payments Correct Correct. As confidentiality and speed are needed when one company is intending to acquire another, a listed bond issue would not be suitable to raise to acquisition finance due to the public disclosure requirements and the time taken to comply with them. The other statements are therefore incorrect. However, once the acquisition is completed and confidentiality is no longer an issue, the Buyer may then decide to re-finance the syndicated loan with a bond issue to take advantage of lower interest payments

Answer 58

An exchangeable bond gives the investor the right (or sometimes the obligation) to exchange its bond into the shares of a company other than the issuer (e.g. a company in the issuer’s group) Correct Correct. A bond which gives the investor the right (or sometimes the obligation) to exchange its bond into the shares of the issuer is a convertible bond, not an exchangeable bond. A bond which is issued (sold) at a deep discount, i.e., for an amount below its nominal value, and which provides for the full nominal value to be paid to the investor at maturity (as a result, the investor’s return comes from the difference between the issue price and the payment of par value at maturity), is a zero-coupon bond, not an exchangeable bond. A bond where the initial fixed interest rate moves up to another pre-determined fixed rate after a given time or on the occurrence of a specified event, such as a failure to fulfil one of the conditions of the bonds, is a step-up bond, not an exchangeable bond. incorrect An exchangeable bond gives the investor the right (or sometimes the obligation) to exchange its bond into the shares of the issuer Incorrect. This statement describes a convertible bond. Please revisit this element.

Answer 59

Once a credit rating agency has assigned a credit rating to the issuer and to the particular bond issue at the time of issue, the credit rating agency has no continuing role. Correct answer (i.e., this is the only incorrect statement). After issue of the bonds, the credit rating agency performs a continuing role, monitoring the market throughout the life of the bonds and changing its rating (by way of upgrades or downgrades) according to developments relating to the issuer and/or the markets which may affect the issuer’s ability to repay the bonds. The other statements are correct.

Answer 60

As bonds are traded electronically within the clearing systems, there is no need for the issuer to create any paper certificate representing the bonds when the bonds are issued. Correct answer (i.e., this is the only incorrect statement). Although individual investors do not receive bonds in paper form because the bonds are traded electronically, there is still a need for the issuer, on issue, to create a single global bond in paper certificate form representing the total amount of bonds issued in a single issue. Once issued, the global bond will be delivered to the depositary which has been appointed by the clearing system to act as custodian of the global bond. The depositary will safeguard and hold the global bond on behalf of the clearing system until the maturity date of the bond issue. The other statements are correct: As bonds are traded electronically within the clearing systems, there is no need for individual investors to be issued with definitive bonds in paper certificate form. With bearer bonds, title to the bond passes by delivery and whoever is in possession of the bond is the owner. In the case of a registered bond, the transferee’s name must be registered in the register of bondholders for legal ownership to be transferred.

Answer 61

A guaranteed bond issue Correct. There is no legal or practical requirement for the appointment of a trustee in a guaranteed bond issue. In a secured bond issue, a trustee is needed to hold the security on behalf of the bondholders from time to time, to avoid problems with frequent formal transfers as well as hardening periods and loss of priority under insolvency law. In a convertible bond issue where has the investor has the right (or sometimes the obligation) to exchange its bond into the shares of the issuer, it is more convenient for the issuer and more reassuring for the bondholders to have a trustee representing them to monitor the complex conversion mechanics. In a subordinated bond issue, where payments on the bonds can only be made after the issuer has made the payments it owes under another bond issue, a trustee is typically appointed to monitor and if necessary, enforce the subordination terms.

Answer 62

If the issuer defaults in a bond issue administered by a fiscal agent, the fiscal agent could enforce against the issuer on behalf of the bondholders Correct Correct answer (i.e., this is the only incorrect statement). In a fiscal agency structure, the fiscal agent does not represent the interests of the bondholders and if the issuer defaults the fiscal agent would take no action to enforce against the issuer on behalf of the bondholders. Instead, any individual bondholder could all an event of default. When a trustee structure is used, only the trustee would be able to call an event of default on behalf of the bondholders.

Answer 63

Correct Correct. In a fiscal agency structure, in addition to a fiscal agency agreement, a deed of covenant is needed to enable each bondholder to enforce directly against the issuer if the issuer defaults. The other statements are incorrect. In a trustee structure, a deed of covenant is not needed to enable the bondholders to enforce directly against the issuer if the issuer defaults, because only the trustee can enforce on behalf of the bondholders under the terms of the trust deed. A bond issue requires either a fiscal agent or trustee to administer the issue, but never both. When a fiscal agent structure is used, the fiscal agent will also act as principal paying agent and administer the payment of coupon and principal to the bondholders as agent of the issuer. It is only when a trustee structure is used that an issuer would need to appoint a separate principal paying agent to administer the payments of coupon and principal, as the trustee cannot act as paying agent of the issuer and also represent the bondholders. Please revisit this element.

Answer 64

Admission particulars approved by the London Stock Exchange. Correct Correct. Under s.85(2) FSMA, it is unlawful to request admission to trading on the Main Market of the London Stock Exchange (“LSE”), which is a “regulated market” for the purposes of s.85(2), without a prospectus approved by the Financial Conduct Authority (“FCA.”). Admission particulars would be required to obtain a listing of bonds which were to be admitted to trading on the International Securities Market (“ISM”) of the LSE. The ISM is regulated by the LSE but does not constitute a “regulated market” for the purposes of s.85(2) FSMA. To obtain a listing of bonds which are to be admitted to trading on the Main Market of the LSE, in addition to a prospectus approved by the FCA, an application to the FCA for admission of the bonds to its Official List and an application to the LSE for admission of the bonds to trading on its Main Market are also required. incorrect An application to the Financial Conduct Authority for admission of the bonds to its Official List. Incorrect. This application is a requirement of obtaining a listing on the Main Market of the London Stock Exchange. Please revisit this element. An application to the London Stock Exchange for admission of the bonds to trading on its Main Market. Incorrect. This application is a requirement of obtaining a listing on the Main Market of the London Stock Exchange. Please revisit this element.

Answer 65

Whilst a listing of the bonds will enable the issuer to gain access to a larger number of institutional investors, a disadvantage for the issuer is that it could expect to pay higher transaction/set up and interest costs than if the bonds were not listed. Correct answer (i.e., this is the only incorrect statement). A listing of the bonds would enable the issuer to gain access to a larger number of institutional investors, as they are generally required to hold their investments in listed securities). The issuer would expect to pay higher transaction/set-up costs because of the legal fees incurred in due diligence and drafting the prospectus. However, the issuer would then expect to pay lower interest throughout the life of the bond because the listing makes the bond more marketable (and as the bond is easier to sell, the interest paid by the issuer should be lower). The other statements are correct.

Answer 66

For practical purposes, the draft prospectus must be approved by the Financial Conduct Authority before launch when the formal announcement of the planned issue of the bonds is made. Correct answer (i.e., this is the only incorrect statement). At launch, the prospectus should be in final draft form ready to submit to the Financial Conduct Authority (“FCA”) for its approval. The prospectus will need to have been approved by the FCA prior to signing, since that is when the managers become legally committed to buying the bonds. The other statements are correct.

Answer 67

The amount of minimum information that needs to be included in a prospectus is contained in the annexes set out in the UK Prospectus Regulation, and depends on the nature of the issuer, the type of securities being issued, and the minimum denomination of the securities being issued. Correct. The other statements are incorrect. A retail issue is where the securities are issued with a minimum denomination of under €100,000 (or its equivalent in another currency). Retail issues require more information to be disclosed than wholesale issues. A wholesale issue is where the securities are issued with a minimum denomination of €100,000 or more (or its equivalent in another currency). Wholesale issues require less information to be disclosed than retail issues. A retail issue requires a summary to be prepared but a wholesale issue does not.

Answer 68

When the final draft of the prospectus is submitted to the FCA, it must be annotated to show where all the information required by the applicable PR Regulation annexes has been included in the prospectus. Correct Correct answer (i.e., this is the only incorrect statement). There is a requirement that the final draft of a prospectus should not be annotated (PRR 3.1.1 (Article 44)). Instead, there is a requirement to submit relevant cross-reference lists. The other statements are correct.

Answer 69

A director of a corporate issuer when the prospectus is published. Correct Correct. A director is not specified as a person responsible for a bond prospectus under PRR 5.3.5 (unlike for an equity prospectus under PRR 5.3.2 (2)(b)). The other statements are correct and fall within PRR 5.3.5.

Answer 70

contrary to the public interest Correct, well done! The FCA may authorise the omission from the prospectus of certain information which must otherwise be included, where it considers that the information falls within Article 18(1)(a) - (c) of the Prospectus Regulation, as set out in PRR 2.8.1. In light of the issuer’s key defence contracts, the Information may fall within Article 18(1)(a) “disclosure …would be contrary to the public interest”. incorrect seriously detrimental to the issuer, provided the Information is of minor importance in relation to this specific admission to trading and would not influence the assessment of the financial position and prospects of the issuer. Incorrect Incorrect. This is not one of the grounds under which the FCA may authorise omission from a prospectus of certain information which must otherwise be included. Please revisit this element and in particular PRR 2.8.1.

Answer 71

The prospectus must be composed of the following three components which can either be kept separate or combined into a single document: a registration document, a securities note and a summary. Correct Correct, well done! As this is a ‘retail’ issue because the minimum denomination of the bonds is less than Euro 100,000, PRR 2.2.1 requires that the prospectus must be drawn up of three components, a registration document, a securities note and a summary, which can either be kept separate or combined into a single document.

Answer 72

The prospectus must contain the information required by Annexes 7, 15 and 21 of the PRR Correct Correct, well done! As the bonds are to be sold in minimum denominations of Euro 100,000, this is a ‘wholesale’ issue and so the information set out in Annexes 7 and 15 is required. As there is a guarantee, the information set out in Annex 21 is also required.

Answer 73

The necessary rights will be granted by the public body in a Concession Agreement with the company. Correct. The rights for the project that the company will need will be contained in Concession Agreement or Project Agreement granted by the public body.

Answer 74

Yes it can as this is a utility project involving debt of more that £50m. Correct. Utility projects involving debt of at least £50m is one of the exceptions to the abolishment of the ability to appoint an administrative receiver under Section 72D of the Insolvency Act 1986. incorrect Yes it can as the bank will be taking fixed and floating charges after 15 December 2003. Incorrect. The ability to appoint an administrative receiver after 15 December 2003 was abolished by Section 72A of the Insolvency Act 1986 (as amended by the Enterprise Act 2002). The real reason why the bank can appoint an administrate receiver in this case is because this is a utility project involving more than £50m debt which constitutes is a specific exception under Section 72D of the Insolvency Act 1986 which allows an administrative receiver to be appointed.

Answer 75

The purpose clause will be defined narrowly, undertakings will prevent the paying of dividends, events of default will include nationalisation of the project, and conditions precedent will include obtaining consent from the secretary of state. Correct Correct. In a project finance deal the finance documents will contain a purpose clause which will be defined narrowly, undertakings that prevent the paying of dividends, events of default that include nationalisation of the project, and conditions precedent that include obtaining consent from the secretary of state. incorrect The purpose clause will be defined widely, undertakings will prevent the paying of dividends, events of default will exclude nationalisation of the project, and conditions precedent will include obtaining consent from the secretary of state. Incorrect. In a project finance deal the finance documents will not contain a widely defined purpose clause and nationalisation will be included in the events of default.

Answer 76

International Swaps and Derivatives Association Correct. The International Swaps and Derivatives Association is the main association for the derivatives market – ISDA.

Answer 77

The ISDA Master Agreement Correct. It is the ISDA Master Agreement

Answer 78

The bank will require an interest rate and currency swap will which be contained in the list of conditions precedent to the loan agreement. Correct. As interest rates are linked to SONIA which can fluctuate loan amounts are to be paid in pound sterling with income in euros, the bank will require an interest rate and currency swap will which be contained in the list of conditions precedent to the loan agreement. Incorrect The bank will require an interest rate swap only will which be contained in the list of conditions precedent to the loan agreement. A currency swap is not needed as company is in Germany and will be able to service the loan payments. Incorrect. As loan amounts are to be paid in pound sterling with income in euros, the bank will require currency swap as well as an interest rate swap will which be contained in the list of conditions precedent to the loan agreement.

Answer 79

The rail operator will set up a new special purpose vehicle and issue a long-term bond which will include a security trustee. The rail operator as shareholder of the SPV will be known as the sponsor and the new special purpose vehicle as the project company Correct Correct. It is likely that the rail operator will set up a new special purpose vehicle (SPV) and that a long-term bond issue will be used including security granted to bondholders with a security trustee structure. The rail operator as shareholder of the SPV will be known as the sponsor and the new special purpose vehicle as the project company.

Answer 80

The bank and bondholders are unlikely to have recourse to the project company, security will be taken over future revenue streams of the project, and the project company will make payments to specified accounts under an account agreement. Correct Correct. The bank and bondholders are unlikely to have recourse to the project company as this is likely to be a special purpose vehicle, security will be taken over future revenue streams of the project, and the project company will make payments to specified accounts under an account agreement which will agree the order in which payments are made (waterfall payments). incorrect The bank and bondholders are unlikely to have recourse to the project company, security will be taken over future revenue streams of the project, and the project company will make payments to specified accounts under an intercreditor agreement. Incorrect. The bank and bondholders are unlikely to have recourse to the project company as this is likely to be a special purpose vehicle, security will be taken over future revenue streams of the project, and the project company will make payments to specified accounts under an account agreement which will agree the order in which payments are made (waterfall payments).

Answer 81

The benefits of using a bond is that the issuer can pay a fixed coupon for a longer term and the bond will be cheaper than a term loan although the initial set up cost will be higher. The drawback is that a bond will lack flexibility if changes need to be made to terms and documents. Correct. For project finance, the benefit of issuing a bond is that the issuer can pay a fixed coupon for a longer term and the bond will be cheaper than a term loan although the initial set up cost will be higher. The drawback is that a bond will lack flexibility if changes need to be made to terms and documents.

Answer 82

The issuer will not be required to enter into a deed of covenant for the Bonds Correct. As this is a secured bond issue, a trustee will be needed to hold the security for the benefit of the bondholders from time to time. In a trustee structure, a deed of covenant is not needed to enable the bondholders to enforce directly against the issuer if the issuer defaults, because only the trustee can enforce on behalf of the bondholders under the terms of the trust deed. incorrect Incorrect. This is a secured bond issue and so a trustee is needed to hold the security for the benefit of the bondholders, which a fiscal agent cannot do. Please revisit this element. Incorrect. This is a secured bond issue and so a trustee is needed to hold the security for the benefit of the bondholders, which a fiscal agent cannot do. Please revisit this element Each bondholder would be able to call an event of default if the issuer defaults under the Bonds Incorrect. This is a secured bond issue and so a trustee is needed. If the issuer defaults in a bond issue administered by a trustee, only the trustee would be able to call an event of default on behalf of the bondholders. Please revisit this element. The issuer will not be required to enter into a principal paying agency agreement Incorrect. This is a secured bond issue and so a trustee is needed. The issuer would therefore need to appoint a separate principal paying agent to administer the payments of coupon and principal, as the trustee cannot act as paying agent of the issuer and represent the bondholders. Please revisit this element.

Answer 83

The Bonds are eurobonds, because although they are denominated in the currency of its country of issue, i.e. Sterling, they are being sold to investors in the Unites States and Japan. Correct, well done! A eurocurrency is a currency held outside of its country of origin. So a eurobond is a bond targeted at the international market either because it is: a bond denominated in a eurocurrency i.e. a currency other than that of the country of issue e.g. a UK company issues a US Dollar bond; or a bond denominated in the currency of its country of issue but sold to international investors (who would be using a eurocurrency to buy the bond) – as in this case, a Sterling denominated bond, issued in the UK and sold to US and Japanese investors. The other statements are therefore incorrect. incorrect The Bonds are not eurobonds because they are denominated in the currency of its country of issue, i.e. Sterling, rather than a currency other than that of the country of issue Incorrect. A eurobond can be denominated in the currency of its country of issue. Please revisit this element.

Answer 84

The terms and conditions of the Bonds will be set out in the offering document needed for listing and in a schedule to the trust deed. Correct, well done! As these are convertible bonds with additional complex provisions (financial covenants), the issuer will need to appoint a trustee to monitor the provisions for the benefit of the bondholders, and so the terms and conditions will be set out in a schedule to the trust deed as well as in the offering document needed for listing.