Bond prospectuses

A bond prospectus is a legal document issued by a company offering bonds for sale. Most countries require that a company produce a bond prospectus before offering bonds to investors. The prospectus sets out the key legal, business and financial aspects of the deal and the company offering the bonds.

What is a bond?

A bond is a sort of IOU from a company to repay an investor, usually with interest. Bonds are a type of debt security and may also be referred to as ‘notes’, ‘euro bonds’ or ‘debt securities’.

Bonds are typically bought and sold on a debt capital market. An issuer borrows money by selling bonds to investors. In return investors receive interest on their loan with a promise from the issuer to repay the loan after a set period of time. In turn, the issuer receives the money raised from selling the bonds.

Background to issuing bonds

A company wishing to offer bonds to investors will normally want their bonds to be listed on an exchange. Listing on an exchange ensures that the broadest range of investors are able invest in the bonds. It also ensures that bonds can be bought and sold easily.

Most, if not all, exchanges require that a company offering debt securities to the public produce a prospectus detailing the key aspects of the offer and background information on the company and its business. The purpose of the prospectus is to help investors evaluate the commercial viability of the company and the value of the company’s debt securities.

The process for listing debt securities in London is similar to that of an equity listing. The process involves:

• Admission to the UK Listing Authority’s (UKLA’s) Official List
• Admission to trading

To obtain a listing, securities must be first admitted to the UKLA’s Official List. To be admitted, a company must submit a prospectus to the UKLA for review and approval, together with any supporting documents.

The required contents of a prospectus are set out in the FCA’s Prospectus Regulation rules instrument.

What types of document does the UKLA approve?

Under the Prospectus Regulation rules and the Listing Rules, companies issuing securities (known as ‘issuers’) must submit certain types of investor documents (principally draft prospectuses, listing particulars and shareholder circulars) to the FCA (in its capacity as the UKLA) for its approval.

The purpose of the review and approval process is to ensure that the document includes all information required by law before it is published.

How do you submit a prospectus to the UKLA for approval?

Companies or their advisors can submit a draft document in electronic form to the UKLA using the FCA’s Electronic Submission System.

If the document is received by 4pm, the FCA will allocate a team to review a company’s case that day. The FCA will then phone and/or email with the contact details of the review team. The FCA aims to respond to submissions within certain timeframes:

• 4 clear working days (plain vanilla debt securities, MTN programmes, securitisations)
• 2 clear working days (for subsequent submissions)

The FCA also offers a Same Day Service (SDS) for the rapid review and approval of certain non-equity supplementary prospectuses and supplementary listing particulars.

What to include with your initial prospectus submission?

Companies are required to include the following documents with their draft submissions:

• The draft prospectus
• Form A
• Publication form
• Variation request letter (if applicable)
• Copies of any information incorporated into the prospectus
• Relevant completed checklists or cross-reference lists
• Fee or electronic payment
• Other required information (eg a covering letter to highlight previous correspondence)

If the issuer is premium listed and the transaction requires a sponsor then the following documents may be required:

• Draft sponsor’s declaration on application for listing
• An upfront submission form to address queries that typically arise on document reviews

Further submissions should include a black-lined version of the latest draft document, highlighting the changes made compared to the previous draft submitted.

What is in a bond prospectus or offering document?

Bond prospectuses set out the key information on a debt offering. Together with the other offering documents, they set out information on interest payments, time to maturity, the credit quality of the issuer and any call provisions. A typical corporate bond will be issued and offered pursuant to:

• A standalone prospectus/medium term note base prospectus and final terms document
• A trust deed (appointing a trustee to act on the behalf of bondholders)
• A single ‘global’ form bond representing all underlying holdings held through CREST
• Marketing materials

A typical retail bond will have terms and conditions setting out the following:

• Issue price/redemption price
• Interest rate
• Events of default
• Currency
• Puts/calls
• Senior/subordinated
• Interest to be paid gross subject to limited exceptions
• Low denomination bonds

A public offer requires a retail prospectus that includes a detailed business description, audited financial information, detailed risk factors and the terms of the bond. A retail prospectus must contain a summary in non-technical language of the essential characteristics of the risks relating to the issuer and the bonds.

When must a prospectus be filed?

After a prospectus is approved by the FCA, it must be filed with the FCA at the same time it is made available to the public. A prospectus is filed by uploading it to the FCA’s website. A prospectus must be made available to the public as soon as practicable and at the latest at the beginning of the offer or admission to trading of the securities.

How can a prospectus be made available to the public?

A prospectus can be made available to the public by:

• Inserting it in one or more national newspapers widely circulated in the UK
• In printed form at the offices of the company
• In electronic form on the company’s website
• In electronic form on the website of the exchange

Electronic prospectuses must be easily accessible on the website, be searchable, downloadable and printable. They must not contain hyperlinks except to content incorporated into the prospectus by reference. Access to the prospectus must not require registration, accepting a disclaimer or the payment of a fee.

What are the steps needed for a bond issue?

A bond issue can be broken down into the following stages:

• Pre-launch – where the issuer considers the type of bonds and how to structure the deal
• Launch and roadshow – where the lead manager announces the bond issue and promotes the bonds to potential investors.
• Issue (signing) – where the managers sign the subscription agreement, agreeing to subscribe for the bonds on closing
• Issue (closing) – where the trust deed is signed and the bond instrument is created. Investors receive their bonds in exchange for payment
• Post-issue – where the issuer pays interest to bondholders until the bonds mature.