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Market overview

High-yield debt securities versus bank loans

Discuss the major differences between high-yield debt securities and bank loans in your jurisdiction. What are some of the critical advantages and disadvantages?

High-yield bonds in Singapore have generally taken one of two forms:

  • US dollar bonds that are similar to US-style high-yield bonds issued with a comprehensive set of incurrence and other financial covenants and governed under a New York law indenture; or
  • high-yield bonds comprising Singapore dollar debt securities issued under a multicurrency medium-term note (MTN) programme, which are typically unrated with only a covenant-lite covenant package consisting of a negative pledge and no limits on incurrence of unsecured debt, restricted payments covenant or other restrictive covenants. The bonds will typically have financial maintenance covenants similar to those found in bank loans instead of incurrence covenants.

The majority of corporate bonds issued in Singapore take the second form.

As compared with bank loans, with high-yield bonds companies typically are able to obtain longer tenures at a fixed interest rate, which can be particularly attractive in a rising rate environment. Companies may also be able to obtain more favourable credit spreads with bonds, particularly with Singapore dollar bonds issued off an MTN programme.

In addition, for US-style high-yield bonds issued with a comprehensive set of incurrence and other financial covenants, dealing with incurrence covenants instead of maintenance covenants (as typically required by bank loans) generally also provides a company with greater operational flexibility, given the financial covenants are tested at the time the company seeks to engage in certain restricted conduct; unlike maintenance covenants, which have to be complied on an ongoing basis.

Alternatively, a bank loan generally provides a company with more flexibility when waivers or amendments to the debt terms are required, given a company will only need to seek consent from a relatively small group of lenders and can typically leverage on its relationship with its bank lenders, as opposed to seeking consent from a potentially disparate group of international bond investors.

Regulation

Are you seeing increased regulation regarding either high-yield debt securities or bank loans in your jurisdiction?

There have not been any increased regulations in Singapore that are specific to high-yield debt securities lately. However, Singapore has introduced a number of grant schemes and also implemented a number of changes in the past two years to support its bond market.

In January 2017, in an effort to support Asian bonds in Singapore, the Monetary Authority of Singapore (MAS), the financial regulatory authority in Singapore, implemented the Asian Bond Grant Scheme. The Asian Bond Grant Scheme provides qualifying issuers, namely first-time Asian companies and non-bank financial institutions, a grant amount to co-fund 50 per cent of eligible expenses attributable to a bond issuance in Singapore, up to S$200,000 for unrated qualifying issuances and S$400,000 for rated qualifying issuances.

To qualify, the bonds must be issued with a minimum principal amount of S$200,000 (or its foreign currency equivalent) with a minimum non-redeemable period of three years, substantially arranged by licensed financial institutions in Singapore, listed in Singapore and provided that certain other conditions are met. Eligible expenses include:

  • arranger fees;
  • auditor fees;
  • rating fees;
  • legal fees; and
  • listing fees.

The scheme is valid until 31 December 2019.

In April 2017, the MAS also announced the implementation of the Green Bond Grant Scheme, which provides qualified green bond issues (ie, bonds issued and listed on the Singapore Exchange Securities Trading Limited (SGX) with a minimum issue size of S$200 million (or its foreign currency equivalent) and a tenure of at least three years) with a cash grant of up to S$100,000 to offset costs related to independent review of the issuance based on international green bond standards such as the Climate Bonds Standard or Green Bond Principles until 31 May 2020.

In an effort to encourage more rated Singapore dollar bond issuances, in June 2017 the MAS introduced the SGD Credit Rating Grant Scheme, under which an unrated foreign or local corporate or non-bank financial issuer can obtain cash grants to offset 100 per cent of its issuer, programme or issue credit-rating fees, subject to a funding cap of S$400,000 per issuer and provided that certain other conditions are met. The scheme is valid until 31 March 2022. To qualify, the bonds must be denominated in Singapore dollars and issued and listed in Singapore with a minimum tenure of three years, and the credit rating must be from an international credit rating agency such as Moody’s, Standard & Poor’s or Fitch Group.

As of May 2016, the MAS and the SGX had also introduced two bond frameworks intended to facilitate bond offerings to retail investors for bonds that are intended to be offered more widely. Under the Seasoning Framework, companies that meet certain criteria (eg, size, length of time listed, bond rating or amount of debt listed in the past five years) can tap an issuance and offer new bonds to retail investors after the wholesale bonds have been listed on the SGX for at least six months without having to register a prospectus with the MAS. Under the Exempt Bond Issuer Framework, issuers that satisfy thresholds that are higher than the eligibility criteria under the Seasoning Framework can offer new issuances directly to retail investors without having to register a prospectus with the MAS.

Current market activity

Describe the current market activity and trends in your jurisdiction relating to high-yield debt securities financings.

US-style high-yield bonds from Singapore issuers have historically mostly been in the technology, media and telecommunications (TMT) sector or otherwise involved larger issuances. One particular subset of US-style high-yield bonds has been from Indonesian corporate groups issuing through a Singapore special purpose vehicle (SPV) where the proceeds are on-lent to an Indonesian parent through intercompany loans. High-yield MTN issuances, in contrast, have been across various industries, including the real estate, energy and transportation sectors.

The past few years have seen increased use of Singapore doubledecker structures by Indonesian issuers. As Singapore is a party to a double-taxation treaty with Indonesia, use of a Singapore issuer permits the issuer group to benefit from a reduced rate of withholding tax on interest payments from the Indonesian parent from 20 per cent to 10 per cent if it is able to comply with the requirements stipulated by Indonesian tax regulations. These requirements include, among other things:

  • that the Singapore company has its own management;
  • that the Singapore company is actively engaged in business and trade; and
  • that the structure is not created merely for the purposes of accessing the benefits of the double-taxation treaty.

Provided that the Singapore issuer can also establish that the bonds are qualifying debt securities under the Singapore Qualifying Debt Securities (QDS) scheme, which provides tax exemption or lower tax rates for income derived from QDS, issuing high-yield bonds through Singapore provides a relatively attractive structure for Indonesian corporate issuers of international bonds. To qualify, the bonds must be QDS for purposes of the Income Tax Act, Chapter 134 of Singapore. Subject to certain conditions being fulfilled, interest income earned by non-residents from QDS is exempt from withholding tax.

The double Singapore structure also supports the credit structure of the bond through the share pledge of the Singapore issuer by a Singapore holding company and is intended to allow creditors to enforce their pledges granted by the top Singapore company over the shares of the lower Singapore company, and thereby gain the power to control the Indonesian company’s board of directors.

US-style high-yield bonds in Singapore are typically backed by guarantees from certain restricted subsidiaries within the issuer group, and in some cases, also involve security. In contrast, the MTN issuances are usually not guaranteed and are unsecured.

Investors in US-style high-yield bonds, typically, are institutional investors such as:

  • investment banks;
  • mutual funds;
  • insurance companies;
  • pension funds;
  • hedge funds; and
  • other investment managers.

As noted in question 1, much of the high-yield paper issued in Singapore takes the form of issuances under MTN programmes, which contain covenant-lite covenant packages that usually consist of only a negative pledge with no limits on incurrence of unsecured debt, no restricted payments covenant and no merger or affiliate transactions restrictions or other restrictive covenants typically found in US-style high-yield bonds. The largest investor group in Singapore MTN issuances tends to be private banks and their private-banking clients for which the banks are usually paid rebates of up to 1 per cent to place the bonds. Rebates paid to private banks for orders have come under increasing criticism and scrutiny, although the practice is unlikely to change in the near future.

Main participants

Identify the main participants in a high-yield debt financing in your jurisdiction and outline their roles and fees.

One or more investment banks will usually be mandated by the issuer as the global coordinator and bookrunner to arrange and negotiate the terms of the bond offering with potential investors. They will usually act as initial purchasers of the bonds and then on-sell the bonds to investors in private placements. For MTN issuances, there will a lead manager or arranger responsible for arranging the MTN programme and issuance and, either alone or together with other managers, managing and participating in selling the bonds. A bank or trust company is usually appointed to act as trustee on behalf of bondholders under the terms set out in a New York law bond indenture for US-style bond issues or in a trust deed for Singapore dollar MTN issuances governed by Singapore law. For US-style high-yield bonds, typically two rating agencies will be appointed to assign credit ratings to the high-yield bonds, which provide investors with an assessment of the credit risk attaching to the issuer or the bonds.

Paying agents will be appointed to act as the administrative agents of the issuer, which will make payments of interest and principal to bondholders. For SGX-listed bonds of a foreign issuer, a Singapore paying agent will also need to be appointed in certain circumstances. In the case of secured bonds, a security trustee will be appointed to hold the security on trust for the benefit of secured bondholders and other secured creditors. The rights and duties of the security trustee will usually be set out in the indenture or security agreements or, in the case of more than one group of secured creditors, an intercreditor agreement, which will also include provisions dealing with how the proceeds of enforcement are to be applied.

As most of the bonds issued in Singapore are listed on the SGX, there will also be a Singapore listing agent appointed to advise the issuer on the procedure for listing the bonds and to submit the listing application and other documents for approval and listing with the SGX.

The fees payable for these roles will vary, and are typically documented in separate fee agreements between the parties.

New trends

Describe any new trends as they relate to the covenant package, structure, regulatory review or other aspects of high-yield debt securities.

See question 3.

Documentation terms

Issuance

How are high-yield debt securities issued in your jurisdiction? Are there particular precedents or models that companies and investors tend to review prior to issuing the securities?

As discussed in question 1, high-yield debt securities have generally taken one of two forms. Some are US-style high-yield bonds with a standard covenant package that typically restricts the ability of the issuer and certain restricted subsidiaries to, among other things:

  • incur or guarantee indebtedness;
  • pay dividends;
  • redeem capital stock and make certain investments;
  • make certain other restricted payments;
  • create or permit to exist certain liens;
  • sell, lease or transfer certain assets;
  • enter into certain transactions with affiliates;
  • merge or consolidate with other entities; and
  • impair the security interests for the benefit of the holders of the bonds.

These are denominated in US dollars and are generally issued under an indenture governed by New York law entered into between the issuer and guarantors and the bond trustee. The bonds are generally cleared through Euroclear and Clearstream, or through DTC if there is a Rule 144A tranche. A significant amount of high-yield debt issuances in Singapore are issued under multicurrency MTN programmes and generally contain only a limited negative pledge and limited other restrictive covenants, and are predominantly unrated issuances. These bonds, if denominated in Singapore dollars, are typically cleared through the Singapore Central Depositary (Pte) Limited (CDP) or through Euroclear and Clearstream.

Issuers and banks will typically look to the terms of outstanding bonds if a repeat issuer, or if a debut issuer to recent transactions with issuers in the same industry and of similar size, and with a similar credit profile and geographic location.

Maturity and call structure

What is the typical maturity and call structure of a high-yield debt security? Are high-yield securities frequently issued with original issue discount? Describe any yield protection provisions typically included in the high-yield debt securities documentation.

US-style high-yield bonds in Singapore are usually issued with tenures of between five and seven years, with the MTN bonds generally having tenures of between two and seven years. High-yield bonds are not frequently issued with original issue discount.

Bonds may be issued with bullet maturities where there is no redemption prior to maturity, although it is more common to see provisions for optional redemption after a certain non-call period. After expiry of the non-call period, the issuer will usually be given the right to redeem some or all of the bonds together with accrued and unpaid interest and an optional redemption premium, depending on the specified call dates. Typically, US-style high-yield bonds are non-callable for at least half their tenure (ie, a five-year tenure with the first three years non-callable (5NC3) or a seven-year tenure with the first four years non-callable (7NC4)). Often, the premium in the first year after the non-call period is par plus 50 per cent of the coupon, and reduces rateably in each subsequent year.

Certain other features allow bondholders to accelerate bond repayments at a defined price owing to changed circumstances. Most have a change of control put offer, which allows bondholders to require that the issuer purchase its bonds, usually at 101 per cent plus accrued interest, upon the occurrence of a specified change of control. US-style high-yield bonds also provide for the issuer to offer to purchase its bonds at par plus accrued interest with the proceeds of certain asset sales that are not used to retire debt or reinvest in the business.

Equity clawbacks are also typically included in US-style high-yield bonds, which permit the issuer to redeem, usually up to 35 per cent, of the outstanding bonds at par plus accrued interest from the proceeds of an equity offering.

In contrast, Singapore MTN bonds typically do not provide for any optional redemption and provide for mandatory redemption only for changes in tax law or, if the issuer is listed, its shares are suspended or cease to be listed on the SGX, in which case the terms usually provide for redemption at par.

Offerings

How are high-yield debt securities offerings launched, priced and closed? How are coupons determined? Do you typically see fixed or floating rates?

The launch, pricing and closing process for high-yield bond offerings is not substantively different in Singapore from that in other countries. For US-style high-yield bonds, offerings are launched and formal roadshows are typically conducted in Singapore, Hong Kong and London and, if there is a Rule 144A tranche, New York and other investment centres in the United States. Pricing takes place after bookbuilding once the initial purchasers and the issuer agree on the coupon and issue price as determined from investor demand. Closing typically takes place on T+5.

Most high-yield bonds are fixed-rate bonds. Pricing depends on several factors, including:

  • current market conditions;
  • the rating and creditworthiness of the issuer;
  • industry considerations;
  • financial profile; and
  • deal structure, including whether the bonds are secured or unsecured.

For Singapore MTN bonds, private banks are typically offered rebates by the bookrunners to obtain orders, as noted in question 3. This practice has had a significant impact on demand for, and consequently pricing of, Singapore MTN bonds.

Covenants

Describe the main covenants restricting the operation of the debtor’s business in a typical high-yield debt securities transaction. Have you been seeing a convergence of covenants between the high-yield and bank markets?

US-style high-yield bonds typically restrict the ability of the issuer and certain restricted subsidiaries to:

  • incur or guarantee indebtedness;
  • pay dividends on or redeem capital stock;
  • make certain investments or to make certain other restricted payments;
  • create or permit to exist certain liens;
  • sell, lease or transfer certain assets;
  • enter into certain transactions with affiliates;
  • merge or consolidate with other entities; and
  • impair the security interests for the benefit of the holders of the bonds.

Secured bonds will have covenants relating to security interests, and bonds utilising a double Singapore SPV structure will also have covenants intended to preserve the structure.

While a convergence of covenants between US-style high-yield and bank markets has not been observed, some convergence can clearly be found with the Singapore MTN bonds that employ financial maintenance covenants regarding tangible net worth, leverage and interest coverage ratios that are similar to those of bank loans.

Are you seeing any tightening of covenants or are you seeing investor protections being eroded? Are terms of covenants often changed between the launch and pricing of an offering?

Other than shifts between issuing a US-style high-yield bond or Singapore MTN bond, no major changes in investor protections within each respective group have been observed lately.

It remains rare for terms of covenants to change between the launch and pricing of the offering.

Are there particular covenants that are looser or tighter, based on a particular industry sector?

The level of loosening or tightening has been less dependent on industry sector than on factors specific to the issuer, such as its profile, credit or rating and the condition of the high-yield bond market in general.

Change of control

Do changes of control, asset sales or similar typically trigger any prepayment requirements?

For US-style high-yield bond issuances, a change of control typically requires the issuer to offer to prepay the bonds at 101 per cent plus accrued interest. With respect to asset sales, issuers are typically required to make an offer to acquire the bonds at par plus accrued interest if the issuer does not use the proceeds from an asset sale in a manner permitted by the limitation on asset sales covenant, such as reinvesting the proceeds in the business or paying down senior debt, and where such excess proceeds exceed a stipulated threshold.

For Singapore MTN bonds, changes of control usually trigger a put option, but the redemption amount varies; it is not uncommon for the change of control put to provide for redemption at par. Singapore MTN bonds typically do not provide any limitation on asset sales.

Do you see the inclusion of ‘double trigger’ change of control provisions tied to a ratings downgrade?

A ratings downgrade is generally not required to trigger the change of control put offer. However, a minority of the US-style high-yield bonds of Indonesian corporate groups that issue the bonds through a Singapore SPV have included a double trigger change of control put that requires both a change of control and ratings decline.

Crossover covenants

Is there the concept of a ‘crossover’ covenant package in your jurisdiction for issuers who are on the verge of being investment grade? And if so, what are some of the key covenant differences?

In respect of US-style high-yield bonds, no crossover covenant packages have evolved in Singapore. There are only provisions for the suspension of certain covenants when the bonds are rated investment grade but not beforehand. The key covenants that are suspended include the restrictions on the issuer’s ability to:

  • pay dividends;
  • incur debt;
  • make asset sales;
  • engage in sales of capital stock in restricted subsidiaries; and
  • provide restricted subsidiary guarantees.

Suspension of these covenants allows the issuer to engage in certain actions that would not have been permitted while these covenants were in force. Generally, any such action that is taken while these covenants are suspended will be permitted to remain in place even if the bonds are subsequently downgraded below investment grade and the covenants are reinstated.

One can take the view, however, that while there is no established concept of a ‘crossover’ covenant package in Singapore, such covenant packages in fact do exist in many of the covenant-lite Singapore MTN bonds for issuers that arguably would be on the higher end of the ratings spectrum if they were to be rated.

Regulation

Disclosure requirements

Describe the disclosure requirements applicable to high-yield debt securities financings. Is there a particular regulatory body that reviews or approves such disclosure requirements?

The main drivers of disclosure are the expectations of high-yield investors and the US disclosure regime, which is applied by analogy in Rule 144A offerings and many Regulation S offerings. Offerings into the US relying on the Rule 144A exemption in particular strive to comply with the disclosure requirements for registered securities that are publicly offered and sold in the US.

Given that many of the high-yield bonds are structured as private placements governed by New York law and marketed as private placements to attract US investor interest as well as participation from European investors, high-yield offerings are impacted by changes in regulations regarding disclosure and securities offerings by the US Securities and Exchange Commission.

In general, the SGX does not review or approve the disclosure for bonds that are offered in Singapore through the private placement exemptions provided under the Securities and Futures Act, Chapter 289 of Singapore (SFA).

As most Singapore bonds are listed on the SGX, issuers are required to comply with the SGX listing and continuing obligations requirements. If the debt securities are offered to institutional investors and other specified persons, as is the case with most high-yield debt issuances, the offering document would not be subject to the prospectus requirements prescribed by the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 (SFR) and need only contain the information that such investors would customarily expect to see in such documents.

Use of proceeds

Are there any limitations on the use of proceeds from an issuance of high-yield securities by an issuer?

An issuer will usually have agreed with the underwriters or managers in the purchase or subscription agreement, as applicable, that it will use the proceeds in the manner described in the offering document. If the issuer uses proceeds for purposes other than those disclosed in the offering document, the issuer may also face securities law liability for misrepresentation. The issuer will usually also be prohibited from using the proceeds in violation of anti-money laundering, anti-bribery, sanctions and similar laws.

If the proceeds of a bond offering by a Singapore issuer are used for refinancing of existing indebtedness or acquisition financing of the group, consideration may also need to be given to the restrictions on financial assistance (see question 19). Otherwise, there are typically no Singapore restrictions on the use of proceeds of a high-yield bond.

Restrictions on investment

On what grounds, if any, could an investor be precluded from investing in high-yield securities?

Offerings of high-yield securities are typically made only to sophisticated investors in reliance on exemptions from securities laws restricting the offering of securities without registration. High-yield bonds offered in Singapore are usually offered pursuant to an exemption from the prospectus requirements to only specified categories of persons, namely institutional investors, accredited investors and other ‘specified persons’ as defined under the SFA. Investors in other jurisdictions are restricted in accordance with the securities laws of each particular jurisdiction, which are usually set out in the selling restrictions section of the offering memorandum. For instance, high-yield bonds, if offered and sold into the US, are usually offered and sold only to qualified institutional buyers in reliance on Rule 144A under the US Securities Act of 1933, as amended.

Closing mechanics

Are there any particular closing mechanics in your jurisdiction that an issuer of high-yield debt securities should be aware of?

Apart from the closing requirements such as registration and payment of stamp duty that apply to certain Singapore law-governed security (if the bonds are secured) and compliance with the SGX listing requirements for bonds listed in Singapore, there are no particular closing mechanics in Singapore specific to high-yield debt securities.

Guarantees and security

Guarantees

Outline how guarantees among companies in a group typically operate in a high-yield deal in your jurisdiction. Are there limitations on guarantees?

US-style high-yield offerings by Singapore issuers will typically include upstream or cross-stream guarantees provided by other group entities. A high-yield deal involving a Singapore SPV issuer will typically be guaranteed by a foreign parent (as in the case of an Indonesian issuer group).

Particularly in the context of a leveraged buyout, should a Singapore guarantor or security provider grant upstream or cross-stream guarantees or security, or provide any other form of financial assistance in connection with the acquisition of itself or its holding company by another party, such guarantees or security may be subject to Singapore financial assistance limitations under the Singapore Companies Act. The Singapore Companies Act prohibits a Singapore public company or a subsidiary of a public company from providing financial assistance for the acquisition of its own shares or the shares of its holding company. In such instances, a whitewash procedure would need to be undertaken to authorise the financial assistance. The procedure typically takes 90 days and entails convening a general shareholders’ meeting, obtaining a majority vote of the shareholders in favour of the financial assistance and providing dissenting shareholders with the opportunity to object.

Importantly, Singapore private companies are exempt from these financial assistance provisions as of 1 July 2015 (but not if they are subsidiaries of Singapore public companies). In all cases, a Singapore company needs to ensure that it derives some corporate benefit in granting the upstream or cross-stream guarantee.

Collateral package

What is the typical collateral package for high-yield debt securities in your jurisdiction?

Where a Singapore SPV bond issuer is used, the net proceeds of the bond offering are typically loaned to the principal holding company which, along with its main operating companies, provides security or guarantees to the issuer in respect of this borrowing. In secured bond deals, the Singapore issuer will typically grant security by way of assignment of its rights under the various transaction documents, including the intercompany loan where proceeds are on-lent to the parent. A charge over the shares of the issuer will also be provided. A number of Indonesian bond issuances through a Singapore SPV have historically also included an offshore collection account located in Singapore that is governed by a cash and account management agreement where offshore revenue and cash receipts are to be deposited, and where the funds, after deduction for operating expenses and taxes, are transferred into debt service and interest reserve accounts, which are also pledged as collateral for the bonds.

Limitations

Are there any limitations on security that can be granted to secure high-yield securities in your jurisdiction? Are there any limitations on types of assets that can be pledged as collateral? Are there any limitations on which entities can provide security?

Other than in certain limited instances as described in question 19, there are no limitations specific to high-yield bonds that apply to the granting of Singapore law-governed security or to the assets that could become subject to such security interests or the parties that could provide such security.

Collateral structure

Describe the typical collateral structure in your jurisdiction. For example, is it common to see crossing lien deals between high-yield debt securities and bank agreements?

Crossing lien deals are uncommon in Singapore. Typically, an intercreditor agreement governs the ranking and relationship among creditors in enforcement and insolvency situations and addresses questions as to the right to direct enforcement and any standstills or consultation required among different creditor groups. Intercreditor arrangements in Singapore range from a standard security trust arrangement to a highly structured or bespoke intercreditor agreement. Such arrangements can include sharing arrangements similar to those in typical syndicated loan transactions. Any debt recovery proceeds received by a creditor in excess of the amount it is entitled to receive can be clawed back and redistributed to the other creditors in accordance with the intercreditor agreement.

Legal expenses

Who typically bears the costs of legal expenses related to security interests?

The issuer will typically bear the costs of legal expenses related to security interests.

Security interests

How are security interests recorded? Is there a public register?

Under the Singapore Companies Act (Cap. 50), a registrable charge created by a Singapore company or a foreign company registered in Singapore must be registered with the Accounting and Corporate Regulatory Authority within 30 days of its creation if the document evidencing the charge was executed in Singapore. If the document evidencing the charge was executed outside Singapore, registration must take place within 37 days of its execution. Once a charge is registered, it will appear on the company’s business profile, which is publicly available. A charge created under the general law is perfected on registration (Registration of Deeds Act (Cap. 269)).

Stamp duty may also apply to the security interest. Pursuant to the Stamp Duties Act (Cap. 312), a mortgage or an agreement for a mortgage of immovable property or stock or shares is chargeable with stamp duty up to a maximum of S$500, where the mortgage or agreement is executed in Singapore, or is executed outside Singapore and relates to any property situated or to any matter or thing done or to be done in Singapore, and is received in Singapore. The applicable stamp duty must be paid within 14 days if the mortgage document is signed in Singapore, or within 30 days of its receipt in Singapore if the document is signed outside of Singapore.

How are security interests typically enforced in the high-yield context?

The circumstances under which a security agent or trustee can enforce security are governed by the terms of the relevant agreement. The security documents will typically provide that the security is enforceable on the occurrence of an event of default or if the security agent has accelerated the loans. Subject to the terms of the security documents, a security agent holding Singapore security on behalf of the trustee can generally enforce its security without court involvement. Usually the security document will provide for enforcement remedies, which can include possession, sale, receivership or foreclosure of the mortgaged property. These remedies are cumulative and not mutually exclusive.

Debt seniority and intercreditor arrangements

Ranking of high-yield debt

How does high-yield debt rank in relation to other creditor interests?

Where the high-yield debt ranks in relation to other creditor interests depends on the capital structure of the issuer group. The majority of high-yield bonds are senior unsecured notes, which typically mean that they will rank equally in right of payment with any existing and future senior debt, are senior in right of payment to any existing and future subordinated debt, are effectively subordinated to all secured debt to the extent of the value of the assets serving as security therefor, and are subordinated to any existing and future debt of subsidiaries that are not guaranteeing the bonds. If the high-yield bonds are secured, an intercreditor agreement will typically provide that the collateral is shared with any existing senior secured bank debt.

Regulation of voting and control

Describe how intercreditor arrangements entered into by companies in your jurisdiction typically regulate voting and control between holders of high-yield debt securities and bank lenders?

In cases where there is common collateral shared among holders of high-yield debt securities and bank lenders, voting and control are usually determined by the seniority of the debt in relation to the common security, or if the classes of debt rank pari passu, the proportion of aggregate principal amount of debt outstanding in relation to the common security. High-yield bondholders are usually restricted from taking any enforcement action with respect to the common security unless an event of default has occurred and is continuing under the indenture and a standstill period has expired, and priority creditors have not issued instructions to the security agent in relation to the common security or have instructed the security agent to cease enforcement.

Tax considerations

Offsetting of interest payments

May issuers set off interest payments on their securities against their tax liability? Are there any special considerations for the high-yield market?

Generally, interest incurred on capital employed in the production of income will be allowed as a tax deduction.

Tax rulings

Is it common for issuers to obtain a tax ruling from the competent authority in your jurisdiction in connection with the issuance of high-yield bonds?

No. Tax rulings are not typically required from the tax authority for a high-yield bond issuance.