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10 October 2013
Special purpose vehicles
Continuing obligation requirements
When accepting listing sponsor or agent services in respect of debt listings on the Channel Islands Stock Exchange (CISX), a number of considerations arise.
Under Chapter VIII of the CISX Rules (Specialist Categories of Debt Securities), a loan agreement (or a loan made under such an agreement) cannot be listed on the CISX, as it will list only 'securities' and a loan itself is thought insufficient to give rise to the existence of a security. One solution is for a loan to be converted into a form of loan note, whereby the borrower's debt to the lender is evidenced by the issuance of securities or eurobonds(1) to the lender.
Freely transferable eurobonds
Eurobonds that are to be listed on the CISX under Chapter VIII of the rules must be freely transferable or tradable. This requirement does not mean that eurobonds listed must be transferred or traded, but rather that they must be capable of being transferred or traded. It may be possible to seek a derogation on transferability in very limited circumstances.
The CISX Rules (and the CISX market authority) do not require that a registrar be appointed for most standard debt listings. An issuer is itself able to maintain the register of noteholders.
CISX listings can be achieved at relatively short notice and the listing process is generally not protracted. The listing process can be undertaken quickly in terms of the time taken between submission of an initial listing application, submission of a final listing application and admission of eurobonds to the CISX Official List.
On receipt and review (from a CISX listing perspective) of drafts of the listing document and the instrument constituting the eurobonds (which are usually prepared by the issuer's onshore legal representatives), the sponsor can make an initial listing application to the CISX. This involves the electronic submission of the draft listing document and instrument constituting the eurobonds, together with other ancillary listing documents. The CISX will try to guarantee a turnaround of between 48 and 72 hours to provide comments on initial listing applications. However, at the time of writing the usual turnaround time is between three and four working days.
When CISX comments (if any) have been addressed, a final listing application can be made. This final application will comprise the submission of electronic copies of certain signed and certified documents. Typically, a final application can be made within a few days of receiving the CISX's comments on the initial application. Same-day listing can be achieved on the proposed date of listing, provided that the required final listing application documentation is received by the sponsor with sufficient notice on any working day on which the market authority is sitting.
Applications for in-principle consent to list payment-in-kind notes, as and when they are issued, will typically be made at the time of making the listing application for the admission of the principal notes to be listed. Applications can be made to list an unlimited number of payment-in-kind notes or a ceiling can be set.
If any payment-in-kind notes to be listed are fully fungible with the existing notes (ie, they are to form a single series or the same class as the existing notes), the payment-in-kind notes must be listed on the same day as they are issued or the issuer will be in breach of the CISX Rules (all eurobonds forming the same class must be listed when they are issued). If the intention is for the payment-in-kind notes not to be fully fungible with the existing notes, the first payment-in-kind notes that are issued can be listed following issuance. However, any further payment-in-kind notes that are issued will be fully fungible with the first payment-in-kind notes and should therefore be listed on the same day as they are issued.
An issuer will be considered a 'special purpose vehicle' (SPV) within the meaning of the rules where the issuer was formed for the primary purpose of issuing eurobonds to be listed on the CISX.
In order for a non-SPV issuer to list eurobonds under Chapter VIII of the rules, the CISX and the sponsor must be comfortable that the issuer is appropriate for such a listing. One of the questions the CISX will consider in assessing whether an issuer is or can be listed under Chapter VIII of the rules is whether the issuer will be listing 'specialist securities'. Under the rules, these are defined as "securities which, because of their nature, are normally bought and traded by a limited number of investors who are particularly knowledgeable in investment matters".
The CISX will not allow debt securities that are to be issued to retail investors to be listed under Chapter VIII of the rules. Such securities must instead be listed under Chapter VI, which entails more onerous continuing obligations for such an issuer.
The CISX has been prepared to treat trading companies or other non-SPV issuers under Chapter VIII of the rules where:
One typical such scenario would be where a holding or trading company intends to issue eurobonds on an intra-group basis as part of a refinancing or proposed acquisition. In such cases, the CISX will usually be prepared to treat such an issuer under Chapter VIII of the rules, provided that the minimum denomination is above £50,000 and the noteholders are intra-group companies.
Issuers that are not treated as SPVs will pay a lower CISX listing fee. However, as part of the initial application, they must submit to the CISX their latest two years' worth of annual audited accounts. Non-SPVs are also required to apply for an international securities identification number. SPVs are able to list future series of eurobonds at £500 per series. Non-SPVs effectively pay more if doing multiple issues (more than payment-in-kind issues).
If the issuer is an SPV, audited accounts need not be filed as part of the listing application. However, if the issuer is a non-SPV (ie, a holding or trading company) listing under Chapter VIII of the rules, the last two (recent) sets of annual audited accounts must be submitted at the time of listing.
After listing, all issuers must file annual accounts with the CISX as and when they become available. Failure to file annual accounts can lead to a £500 late filing fee, censure or de-listing.
Under Paragraph 15, Appendix IV, Part D of the rules, the listing document must include:
"in respect of every company the whole, or a substantial proportion, of whose capital is held or intended to be held (either directly or indirectly) by the issuer, or whose profits or assets make or will make a contribution to the figures in the accountants' report or the next published accounts, particulars of the name, date and country of incorporation or other establishment, general nature of business, issued share capital and the proportion of capital held or intended to be held."
In certain circumstances sponsors have been able to obtain a derogation from compliance with Paragraph 15 on behalf of the issuer. This alleviates the need for all the issuer's subsidiaries to be included in the listing document. The principal situation in which such a derogation may be available is where the issue has a large number of subsidiaries. It may also be possible to obtain a derogation on the basis that a full list of the issuer's subsidiaries can be found in the issuer's published accounts. Where an issuer's accounts do not list all the issuer's subsidiaries because of certain statutory exemptions, this may also be submitted to the CISX as one ground for granting a derogation from listing all the subsidiaries in the listing document. By way of example, one such statutory provision is Section 400 of the UK Companies Act 2006.
Compared with other European securities exchanges, the information that must be disclosed on an annual basis to the CISX in respect of debt listings is not onerous. Any information to be provided pursuant to an issuer's continuing obligations under the rules will not normally be made publicly available by the CISX unless, for example, such information relates to a change in the eurobonds listed, the name of the issuer or another matter material to the interests of noteholders. Some typical examples of disclosable matters that might arise during the maintenance of a debt listing on the CISX include:
As of April 1 2011, the fees for CISX listing are as follows:
The CISX has recently introduced a system of late fees to discourage the late payment of listing fees or non-disclosure of information required to be disclosed by issuers under the continuing obligations regime. The late fees are £500 in relation to listing fees, £500 for post listing documents and £250 for annual/interim accounts.
The CISX is familiar with the concept of admitting promissory notes for listing on the CISX under Chapter VIII of the rules.
Convertible debt securities
Convertible debt securities (ie, those convertible to shares on redemption) can be listed.
International securities identification number
Only non-SPV issuers listing under Chapter VIII of the rules need to have an international securities identification number at the time of listing. The CISX can apply for this number from the London Stock Exchange or another securities exchange. The listing sponsor must ask the CISX to do this as part of the initial application.
Eurobonds can be easily de-listed from the CISX by submission from the sponsor (before the date of redemption or de-listing) of supporting documentation of the issuer evidencing the de-listing. Unless the eurobonds are being redeemed in accordance with their terms (eg, at stated maturity or pursuant to a redemption option), the supporting documentation that the CISX will require from the issuer before de-listing includes:
De-listing must take place on the date of redemption; failure to do so will be a breach of the CISX Rules.
The materials contained on this website are for general information purposes only and are subject to the disclaimer.
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