GUIDE TO HIGH YIELD BOND LISTINGS ON THE INTERNATIONAL STOCK EXCHANGE

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1 GUIDE TO HIGH YIELD BOND LISTINGS ON THE INTERNATIONAL STOCK EXCHANGE CONTENTS PREFACE 1 1. TISE and High Yield Bonds 2 2. Advantages of Listing High Yield Bonds on TISE 3 3. Procedure for Listing High Yield Bonds 3 4. Appleby Securities (Channel Islands) Limited 5 Appendix 1 Chapter 8 Continuing Obligations 6

2 PREFACE This client guide explains the reason why more and more issuers choose to list their high yield bonds on the International Stock Exchange (TISE), the process for listing of high yield bonds on TISE and the advantages of listing on TISE. We recognise that this Guide will not completely answer detailed questions which clients and their advisers may have; it is not intended to be comprehensive. If any such questions arise in relation to the contents, they may be addressed to any member of the team, using the contact information provided at the end of this Guide. Appleby July 2018 applebyglobal.com 1

3 1. TISE AND HIGH YIELD BONDS TISE provides recognised facilities for the listing and trading of debt instruments and securities issued by companies and other forms of investment vehicles. In particular, TISE has seen an increase in the listing of a number of specialist securities, such as high yield bonds which are marketed to qualified institutional investors and sophisticated investors under Rule 144A of the United States Securities Act of High yield bonds are usually issued under New York law-governed indentures/offer documents, but are also often issued in the United Kingdom (UK) under English law trust deeds. Since the introduction of the European Union s Market Abuse Regulation (Regulation 596/2014) (MAR) which repealed and replaced the Market Abuse Directive (2003/6/EC), a number of issuers have sought to move their listings to the Channel Islands and new issuers have commenced listings there. MAR came into effect from 3 July 2016 in an effort to establish a more uniform interpretation of the market abuse regime across the European Union (EU) as the regulations more clearly define the rules applicable in member states. MAR extends the scope of the market abuse framework to include for the first time, among others, any financial instruments: traded on, admitted to trading on or for which a request for admission to trading has been made on a multilateral trading facility; traded on an organised trading facility. We understand that high yield bonds have up to now mostly been listed in multilateral trading facilities and/or organised trading facilities on the Euro MTF market of the Luxembourg Stock Exchange and the Global Exchange Market of the Irish Stock Exchange. As a result MAR now applies to the existing and new listings on these exchanges. MAR's direct application to member states was intended to reduce regulatory complexity and compliance costs for firms (especially for firms operating on a cross-border basis) and offer greater legal certainty. One major concern with MAR for issuers is the requirement of Article 18(1) to draw up an insider list, which is a list of all persons who have access to inside information and who are working for them under a contract of employment, or otherwise performing tasks through which they have access to inside information, such as advisers, accountants or credit rating agencies. The issuers would be required to update the list every time any of the changes specified in Article 18(4)(a)-(c) of MAR occur. Lastly, issuers under MAR may be required to provide such insider lists to the competent authority as soon as possible upon its request. Such requirements are not only burdensome and costly for issuers but also apply equally to all types of securities and are disproportionately onerous for some specialist securities such as high yield bonds. Under MAR, not only are legal entities subject to fines and sanctions, but individual employees may also be liable under certain circumstances for market abuses, which now qualify as criminal offences. Since market abuse penalties in the EU or the UK may include imprisonment it is understandable why issuers who would have previously had their high yield bonds listed on EU markets, most notably the Luxembourg Stock Exchange and the Irish Stock Exchange, are now increasingly seeking alternatives outside of the EU, such as TISE. Since the Channel Islands are based outside of the EU, MAR does not apply to securities listed on TISE. We understand that the leading representative bodies for issuers and investors in the high yield bond markets have confirmed the view that the investor protections conferred by MAR are not necessary given the institutional nature of such investors and participants. applebyglobal.com 2

4 Although not subject to MAR, TISE still maintains robust market abuse rules which are applied proportionately to the type of securities listed and TISE remains an internationally recognised exchange as confirmed by the following: In December 2013, TISE was approved as an Affiliate Member of the International Organisation of Securities Commissions; it later was approved as an Affiliate Member of the World Federation of Exchanges and it was officially recognised by the Australian Securities Exchange. TISE is a recognised stock exchange by Her Majesty s Revenue and Customs pursuant to section 1005 of the Income Tax Act (2007). The tax treatment of high yield bonds is positively enhanced by TISE s status as a recognised stock exchange. Interest paid on qualifying high yield bonds does not have to be withheld for tax purposes if the high yield bonds are listed on TISE. The Bailiwicks of Jersey and Guernsey are within OECD jurisdictions and OECD conventions apply. Both Jersey and Guernsey are 'Designated Territories' under Section 270 of The Financial Services and Markets Act Guernsey and Jersey were recognised as 'Qualified Intermediary' jurisdictions by the US Internal Revenue Service in September Other recognitions include the German securities regulator, BaFin, and the Australian Securities Exchange. 2. ADVANTAGES OF LISTING HIGH YIELD BONDS ON TISE The key strengths of TISE may be summarised as follows: because TISE is a recognised stock exchange, interest paid on qualifying high yield bonds does not have to be withheld for UK tax purposes if the high yield bonds are listed on TISE; because TISE is not part of the EU, issuers issuing high yield bonds on TISE do not have to comply with MAR; because TISE is not part of the EU, issuers issuing high yield bonds on TISE do not have to comply with the EU Prospectus Directive (2003/71/EC); TISE is within the same time zone as the UK and the Channel Islands are an English speaking jurisdiction; personalised approach with speedy turnaround time and consistency of response; competitive pricing and cost effectiveness; responsive and approachable; international standards of issuer regulations; enhanced marketability and added value service; premier locations; and a pragmatic approach to disclosure requirements. 3. PROCEDURE FOR LISTING HIGH YIELD BONDS The first stage in the making of any application for admission to the Official List is the appointment of a sponsor. The applicant must have a sponsor at all times while making the application. Once listed, the sponsor facilitates compliance with the ongoing obligations, the most important of which are listed in Appendix 1 below. Appleby Securities (Channel Islands) Limited is a full listing member able to sponsor the listing of high yield bonds. applebyglobal.com 3

5 The listing procedure consists of four steps: Step 1: Satisfying Listing Conditions Before high yield bonds are considered for admission to the Official List certain conditions must be met. These conditions are vetted by the sponsor. The standards for trading companies, open-ended funds, closed-ended funds, Special Purpose Vehicles (SPVs) debt issues, and special purpose acquisition companies, are very different. Step 2: The Application for Listing of High Yield Bonds The applicant must submit certain documents to TISE as required by TISE Listing Rules. The documentation consists of a Listing Document, which can take the form of an existing published prospectus, offering memorandum, scheme particulars and the like, together with supporting documentation such as accounts, when necessary, and various standard application forms which TISE provides within its Listing Rules. The Listing Document in the case of high yield bonds is usually the offering memorandum which constitutes the high yield bonds and which is usually prepared by onshore instructing counsel. Normally, updating information is included within a wrapper that forms part of the Listing Document. TISE Listing Rules are available on TISE website. There are ten Chapters of which Chapters I to V are generic and applicable to all listings on TISE. Chapter VIII (Special Categories of Securities (other than Equity Securities)) applies specifically to high yield bonds. The listing document disclosure requirements for Chapter VIII Specialist Securities such as high yield bonds are set out in Appendix IX, Part D of TISE Listing Rules. There are 28 disclosure items, the majority of which are fundamental items such as: the details of the terms and the conditions of the issue in question; information about the securities for which listing is sought; information about the issuer and its advisers such as its auditors, sponsor, legal advisers, registrars, paying agents, custodian etc.; information about the issuer s management; and information regarding documents that are required to be made available for inspection by the issuer. An issuer will have to satisfy the Listing and Membership Committee that the relevant securities constitute specialist securities by showing that the securities will be purchased and traded only by a limited number of investors who are knowledgeable about investment matters. Specialist debt securities, such as high yield bonds, are securities targeted at sophisticated investors and would therefore meet this requirement. Other conditions to be met include that the securities being listed must, in principle, be freely transferable and tradeable (though there are exemptions to permit potential restrictions on transfer) and fully paid securities are to be free from any liens. TISE approaches the listing of such specialist securities in a very pragmatic way. With the exception of securities issued by SPVs, issuers must normally have produced three years of audited accounts to be eligible for listing. Where an issuer does not have a 3 year trading history derogations may be obtained from TISE. Like other exchanges specialising in specialist securities, TISE does not require standalone guarantor accounts for each guarantor, if they are all part of the same group, and group consolidated accounts are acceptable. applebyglobal.com 4

6 The Listing and Membership Committee s approach is that a company should fall within the definition of an SPV, if it is issuing debt solely or principally and using the proceeds of such issue to purchase financial instruments, receivables, assets or underlying businesses (but not using the proceeds solely for its own working capital). The proviso is that the SPV issuing company must remain passive i.e. not trade, operate or take an active part in the underlying businesses which are acquired. TISE has developed a fast track equivalence approach into the processing of applications for specialist securities. This means an application may be processed on the understanding that the security to be listed has the associated documentation prepared under the relevant guidelines of a jurisdiction of a stock exchange recognised by TISE, and that there has been no material changes in the information originally contained within the documents to be submitted. As with all core products, the Listing and Membership Committee has developed detailed checklists and procedures for TISE s own use and for use by sponsoring members. Step 3: Approval All applications for listing will be processed by the staff of TISE Listing Department. Once they are satisfied with an application they will submit a report, including their recommendations to TISE s Listing and Membership Committee to be considered at a meeting of the Listing and Membership Committee. Step 4: Listing If the Listing and Membership Committee approves the application, the Listing Document is then filed and the high yield bonds are admitted to the Official List. TISE also provides a facility for the secondary listing of a company s high yield bonds which are already listed on one or more other recognised stock exchanges. The listing process is generally the same for a secondary listing as for a primary listing. TISE will, however, permit an issuer to use the previous listing document approved by the issuer s primary exchange to obtain a listing on TISE and certain information necessary for a primary listing may not be required to be submitted to TISE. TISE may, however, ask that additional documentation be prepared if the documents supplied prove to be inadequate. TISE listing fees are very competitive (current fees may be found on TISE website). In addition, cost savings may arise as, under the Listing Rules of TISE, existing documentation may be utilised to form part of the Listing Document. 4. APPLEBY SECURITIES (CHANNEL ISLANDS) LIMITED Appleby Securities (Channel Islands) Limited is a full listing member of TISE, wholly owned by the Appleby Group, and can act as a sponsor for listing purposes. Appleby Securities (Channel Islands) Limited, working together with Appleby law firm, are able to provide high quality, cost-effective professional services in all aspects of structuring and documenting debt and equity issues, from initial inception to public offerings and listings. applebyglobal.com 5

7 APPENDIX 1 CHAPTER 8 CONTINUING OBLIGATIONS Once listed, the issuer must comply with the continuing obligations specified in Chapter 8 of TISE Listing Rules. The continuing obligations are intended to ensure that all market users have simultaneous access to the same information and to maintain an orderly market in the listed securities. Failure by an issuer to comply with any applicable continuing obligation may result in enforcement action being taken by TISE. Some of the more important general requirements are mentioned below: The issuer has to, within nine months of the end of the period to which its audited annual accounts or unaudited financial statements relate: if the issuer is not required under the law of its country of incorporation to publish audited accounts, provide one copy of the annual report and accounts to TISE; or if the issuer is required under the law of its country of incorporation to publish audited accounts, publish them on TISE s website or include a link to publicly available information placed on the internet, and such accounts have to be independently audited consolidated accounts prepared in accordance with the issuer s national law and appropriate accounting and auditing standards; The issuer is required to keep the public, TISE and the holders of the issuer s securities informed as soon as reasonably practicable of any information relating to the issuer that: is necessary to enable them to appraise the position of the issuer; is necessary to avoid the establishment of a false market in its securities; and might reasonably be expected materially to affect market activity in, and the price of, the issuer s securities. An issuer whose securities are listed on TISE and on any other exchange is required to ensure that equivalent information is made available at the same time to TISE and such other exchanges; The issuer is required within 14 days of the occurrence of any of the following events to disclose to TISE and publish an announcement on TISE s website of: any change in the rights, powers or privileges of any class of listed securities; any decision to call, purchase, redeem or cancel any of the listed securities by the issuer; and, where applicable, make an application to TISE to de-list such securities; any decision to change the issuer's constitutional documents; any appointment of a new director or a resignation or removal of a director; and any changes to any disclosed functions or executive responsibilities of a director. If the listed securities of the issuer may be converted into or exchanged for securities of another company, or are guaranteed by another company, the issuer is required to ensure that adequate information is at all times available to TISE and the holders of the listed securities: concerning the business and affairs of the other company; and concerning the rights, powers and privileges of the securities into which the listed securities are convertible or for which they are exchangeable, but the issuer may satisfy this requirement by stating on TISE s website where equivalent information may be obtained in respect of the company issuing the equity into which the debt is convertible. The issuer is required to submit to TISE, for review, copies of drafts before they are issued of any announcements or advertisements the subject matter of which involves a change in or relates to or affects arrangements regarding trading in the listed securities on TISE, including suspensions or cancellations of listings. applebyglobal.com 6

8 The issuer is required to send to TISE, as soon as practicable after they are issued by the issuer (or on its behalf), one copy of the following: all resolutions of the issuer, in respect of the listed issue, passed other than in the ordinary course of business; any document relating to a takeover of, merger by or offer to purchase the issuer; all notices of meetings in relation to the securities; forms of proxy, reports and announcements in relation to the listed issue; any other similar documents; and any document sent by the issuer (or on its behalf) to holders of the issuer s listed issue. The issuer is required to notify TISE immediately of any changes in its auditors or registered address. applebyglobal.com 7

9 For more specific advice on listing on TISE, we invite you to contact one of the following: Jersey Andrew Weaver Partner Corporate +44 (0) Jersey James Gaudin Partner Corporate +44 (0) Guernsey Jeremy Berchem Group Partner*, Group Head, Guernsey Corporate +44 (0) Isle of Man Kyle Sutherland Partner Corporate +44 (0) For the convenience of clients in other time zones, a list of contacts available in each of our jurisdictions may be found here. *Not admitted in Guernsey The term Partner is a title referring to a member, shareholder, director, employee or consultant of equivalent standing and qualifications of one of the partnerships, limited liabilities companies and other entities which are for the time being authorised by Appleby Global Group LLC to carry on the business of legal practices under the Appleby name. A list of the Partners of any Appleby partnership, members of any Appleby limited liability partnership, or of the members, shareholders or directors of any Appleby limited company and of any other non-shareholders who are termed Partners of any legal practice is available for inspection upon request. Appleby is an organisation of separate entities and legal practices comprising both corporate and partnership for, each established to provide legal services under the Appleby name from the numerous jurisdictions in which it is based. This publication is for general guidance only and does not constitute definitive advice Appleby Global Group Services Limited 2018 applebyglobal.com 8