Navigating the capital markets: part 4

So you’ve issued a public listed bond. Now you can toast its success, file the paperwork, spend the issue proceeds and not worry about it for the next 30 years (or whenever it is due to be refinanced). Not quite.

In this article we consider some of the ongoing obligations which issuers need to be keep in mind having issued listed bonds.

Contractual obligations

It’s fair to say that, in terms of ongoing contractual obligations in public-listed bonds, by comparison with a private placement or a loan agreement, there are typically fewer to comply with.

 

The thinking being that there is likely to be a liquid market to sell the bonds in, should holders no longer wish to be exposed to the issuer and they are therefore not looking for the same level of control and the issuer’s contractual obligations will be supplemented by the listing and other regulatory obligations imposed on issuers of listed debt.

However, there are some standard contractual requirements, including delivering on the following obligations:

• audited financial statements within an agreed period following each financial year end (or other relevant period)
• annual valuation reports in respect of the secured property
• an annual compliance certificate, confirming compliance with asset cover or other financial covenants and whether an event of default (or potential event of default) exists
• upon request of the relevant percentage of bondholders, to convene a meeting to discuss the financial position of the issuer

Listing/regulatory obligations

In addition to its contractual obligations, the fact of having issued listed debt will also impose additional obligations on an issuer.

 

These will depend on the relevant listing venue but, broadly (assuming a London main-market listing), these will cover publication of certain specific information and a more general obligation to disclose ‘inside information’.

With respect to the publication of specific information, this includes publication of the annual report and annual accounts of the issuer.

 

While this is not onerous and is consistent with other obligations to prepare these, the timing and method of publication must be kept in mind.

 

Publication is required within six months of the end of the relevant financial period and must be done by filing with the Financial Conduct Authority (FCA) and notification via a regulatory information service such as the London Stock Exchange’s Regulatory News Service (RNS).

Inside information is defined as information which is precise, has not been made public, relates (directly or indirectly) to one or more financial instruments and if made public would be likely to have a significant effect on the price of those financial instruments or related derivative financial instruments.

 

With respect to the ‘significant effect’, this could be either an adverse effect or a positive effect. The obligation to disclose inside information is one which requires continuous assessment.

 

There are very limited circumstance in which a delay to such disclosure is permitted.

 

Where such delay is permitted, an issuer is nonetheless required to ensure that it has effective arrangements in place for controlling access to the relevant information, draws up and maintains insider lists and notifies the FCA of the intention to delay such disclosure.

Inside information must be published in a manner ensuring that it is capable of being disseminated to as wide a public as possible (via a regulatory information service), be stated to contain inside information and identify the issuer, the subject matter, the time/date of the communication and the individual responsible for making it.

 

Details of any inside information required to be disclosed publicly must also be posted and maintained on the issuer’s website for a period of at least five years.

 

Investor updates

In addition to the contractual and listing/regulatory obligations referred to above, a number of issuers also choose to update bondholders, on a regular basis, with regards to developments in their business by means of investor updates posted on their websites and/or investor meetings.

 

While this is optional, the additional transparency has a number of benefits; both giving the issuer direct contact with its investors and providing investors with an additional means of monitoring the credit worthiness of their investment and, therefore, ultimately, creating an issuer-investor relationship which is likely to be beneficial should the issuer wish to return to the capital markets for further funding.

To the extent that an issuer chooses to provide access to additional information on an optional basis, it should ensure that this is done in a way which ensures equal treatment of all holders and does not breach any applicable regulatory or legal restrictions, such as the disclosure of inside information or unlawful financial promotions.

 

Beth Collett, partner – banking team, Addleshaw Goddard