SGS 7 (Issuing a Bond)

Question 1

What factors affect the timing of issuing a bond?

Answer 1

Seasoned vs first time issuer

Are bonds to be listed?

Local listing requirements

Types of bond

Credit rating of issuer.

Question 2

Seasoned vs first time issuer?

Answer 2

Seasoned issuer can update existing disclosure document which will shorten the process at the DD stage

Frequent issuers usually set up and issue bonds on a regular basis under an EMTN programme (enables short notice to be used on the basis of master documentation)

Question 3

What has had an impact on the timing aspect of local listing requirements?

Answer 3

Prospectus Directive – harmonization of listing and disclosure rules across all EEA countries

Question 4

Why can the type of bond have an effect on timing?

Answer 4

Special features –> more complex provisions (additional disclosure, drafting, negotiation)

trustee structure, legal advisers, PPAs (more documentation)

Question 5

Why does the credit rating of the issuer affect the timing aspect?

Answer 5

If below investment grade, more time and effort needed at pre-launch stage.

Question 6

What is the first step?

Answer 6

Lead Manager sends out a ‘Confirmation to Managers’ to co-managers to confirm participation in issue

(contains all material terms of issue and info to allow managers to confirm participation in the bond issue)

Term Sheet and Initial Syndicate Communication annexed to it.

Question 7

What is the second step?

Answer 7

Managers start seeking investors with a view to selling the bonds (pre-selling)

Question 8

Why is listing bonds useful?

Answer 8

Investors will be more confident in quality

institutional investors required generally to hold most investment listed securities.

quoted Eurobond exemption (pay interest free of withholding tax).

Question 9

What is a cross reference list?

Answer 9

Prospectus format different to the order of information in the annexes

Shows the UKLA where the prospectus includes the information from the relevant annex.

nb, required by PR 3.1.1A.

Question 10

Annotation?

Answer 10

Helps demonstrate compliance to UKLA with the PR minimum disclosure requirements (always in the margin)

Final prospectus not annotated PR 3.1.-1, Article 4.

Question 11

What are the possible consequences of an incomplete prospectus?

Answer 11

PR 3.1.7A – UKLA can refuse to approve the prospectus and terminate the review process

Listing / admission to trading delayed as approved prospectus needed as a pre-condition

Bad impression!

Question 12

What should an issuer do if they consider the certain information is not applicable?

Answer 12

Include reference in the cross-reference list PR 3.1.-1

But always subject to necessary information test

Question 13

What is not regulated market?

Answer 13

Professional Securities Market

No need to comply with PRs, only the less onerous LR 4.

No need for a prospectus, merely requires ‘listing particulars’.

Question 14

Potential civil liabilities?

Answer 14

s.90 FSMA

Negligent misstatement

misrepresentation

tort of deceit

breach of contract (only for managers in relation to breach of subscription agreement)

Question 15

Criminal liabilities?

Answer 15

Part 7 FSA 2012: making false or misleading statements / impressions

s. 19 Theft Act 1968: false statements by company directors
s. 2 Fraud Act 2006: Fraud by false representation
s. 3 Fraud Act 2006 : Fraud by failing to disclose information.

Question 16

Breach of contract?

Answer 16

Damages for loss of bargain (worth of Eurobonds had misstatement not been made)

Need to show causation.

Subsequent investor will need to claim any losses under indemnity from issuer in subscription agreement.

Question 17

Negligent misstatement?

Answer 17

Misstatement made in breach of implicit duty of care owed by person responsible (person ought to know reliance placed on judgement and that person could be issuers, directors or even lead manager)

Investor needs to show a duty of care existed, breach of that duty, investor suffering a loss as a result of the breach.

Courts tend to limit liability for economic loss.

Question 18

What test governs the general content rules of a prospectus?

Answer 18

Necessary information test, s.87A.

Question 19

What type of Eurobond requires more disclosure?

Answer 19

Retail issue

(minimum denomination less than €100,000.

Question 20

How are the persons responsible for the prospectus different to those in equity?

Answer 20

Issuer i.e. company is responsible, NOT directors.

Question 21

Misrepresentation and tort of deceit?

Answer 21

Rescission and damages if investor acts on incorrect / misleading statements but must show reliance.
Innocent misrepresentation allows mangers to terminate.

fraudulent misstatement (heavy onus of proof on claimant)

Question 22

In what ways can liability be limited?

Answer 22

Cooperate fully with DD process

Ensure compliance with disclosure obligations

Make clear in responsibility statement what info they are accepting responsibility for.