SGS 6 - Bonds Flashcards

1
Q

What are the advantages of issuing bonds?

A
Greater number of investors accessed
Greater financing achieved 
Lower individual denominations than loans
Lower interest payments (as tradable)
Tradable
Flexibility of currency
Flexibility of terms
Less onerous terms (as can't be enforced due to investor base)
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2
Q

Disadvantages of issuing bonds:

A
  • Credit rating (only good credit ratings)
  • Increased publicity (bad for reputation)
  • Higher transaction costs (document/lawyers/time)
  • Slower
  • No real relationship with investors
  • More regulation
  • More disclosure requirements
  • Not secured
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3
Q

Parties to a bond issue

A
  • Issuer
  • Lead manager
  • Co-lead manager
  • Fiscal agent/trustee + paying agent
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4
Q

What is the fiscal agents role?

A
  • Agent of issuer
  • Payment of interest and principal to bond holders
  • Acts as principal paying agent
  • Performs administrative functions.
  • No duty of care to bond holder
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5
Q

What is the trustee’s role?

A
  • Represents interests of bond holder
  • Calls bondholder meetings
  • CAn act on bondholders behalf
  • Administrative power
  • Owes duty to bondholders
  • If trustee used separate paying agent required
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6
Q

What are the advantages of having a trustee for the issuer?

A
  • Easier to deal with a group of bondholders when represented by a trustee as can act on their behalf
  • Makes bond more marketable so a higher price is achieved for the bond
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7
Q

ADvantages of having a trustee for the bondholder:

A
  • Trustee performs all administrative functions for bondholders
  • If the bond has complex terms then trustee can adequately represent the bondholder
  • Bondholders can sue through the trustee
  • Trustee can enforce subordination terms
  • Trustees can hold security on behalf of trustees
  • Trustee can protect small bondholder’s interests
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8
Q

Disadvantages of having a trustee:

A
  • More expensive

- A paying agent is required

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9
Q

Why have a fiscal agent?

A
  • Cheaper
  • Obviates need for paying agent
  • Simpler
  • No duty of care to bondholders
  • Disadvantages are reverse of advantages
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10
Q

What is the subscription agreement?

A
  • A document which records the terms on which the manager and co-manager will subscribe for the bonds.
    Includes: pricing, representations, warranties, indemnity in favour of subscribers for breach of undertaking.
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11
Q

What is the fiscal agency agreement?

A

This document deals with the detailed mechanics for payments of
principal and interest under the bonds, as well as administrative matters
such as calling bondholders’ meetings.
The fiscal agent is responsible for this role, so it is essentially setting out how the fiscal agent will pay the bonds.

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12
Q

What is the trust deed?

A
  • A document setting out the powers of the trustee
  • This document will include the issuer’s covenant to pay which is held on trust for the bondholders, and which the trustee uses to enforce bond.
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13
Q

Offering document

A

Marketing document for the bonds, created by the manager.

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14
Q

Paying agency agreement

A

Details mechanism by which paying agent will pay the bondholders

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15
Q

ICMA agreement amongst managers

A

Managers agree how to ‘share out’ their join and several liability, and in what proportion.
Documents how many bonds are subscribed for by each manager

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16
Q

When must a trustee begin proceedings against an issuer?

A
  • Directed by Extraordinary Resolution of the bondholders

- Of requested in writing by the holders of one quarter of the principal amount of the bonds

17
Q

What must the trustee do to declare the bond immediately repayable?

A
  • Certify to the bondholders in writing that the EoD is materially prejudice to the bondholders interests UNLESS:
  • Non-payment
  • Winding up or dissolution of the issuer/guarantor
  • Breach of a negative pledge
18
Q

Where the trustee is reluctant to accelerate a bond due to liability how can this be dealt with?

A
  • Convene a meeting of bondholders to approve the acceleration
19
Q

Why will bond terms be less onerous?

A
  • Longer term investment
  • Risk is more widely spread
  • Marketability of bonds affected by onerous terms
20
Q

What is a deed of covenant?

A

This document enables the bondholder to enforce the bonds directly against the issuer.

21
Q

When is a deed of covenant not required>

A

When there is a trustee, as bondholders will sue through trustee.