The purpose of this briefing is to highlight the principal requirements and key issues to be considered when considering listing high yield bonds on The International Stock Exchange (TISE or the Exchange) under chapter 8 of The International Stock Exchange Authority Limited's (TISEA or the Authority) listing rules (the Listing Rules).
- competitive pricing: (see section entitled “Listing fees” below);
- recognised stock exchange status for "quoted Eurobond" and other purposes; and
- a pragmatic approach to disclosure requirements.
TISE has experienced an increased interest in listing specialist securities, particularly high yield bonds, since the introduction of the EU market abuse regime on 3 July 2016, effected as a result of the new EU Market Abuse Regulation (MAR).
The introduction of MAR has had a number of implications for issuers of debt securities who usually list on EU exchanges. MAR has direct effect in all EU member states, however the Channel Islands are not part of the EU and therefore MAR does not apply to debt securities listed on TISE.
Disclosure requirements as a result of MAR, including the need to compile and maintain insider lists, are seen as the most burdensome for issuers. While issuers of debt securities listed on the regulated markets of EU Member States were already subject to existing EU market abuse regulation, MAR extends beyond those regulated markets to other organised trading facilities and multilateral trading facilities. The extension means that issuers of debt securities on unregulated markets across the EU are now subject to MAR.
TISEA has reviewed and amended its Listing Rules and Model Code For Securities Transactions by Persons Discharging Managerial Support. As a result of the nature of specialist securities and the participants in their issue, ownership and trading, issuers with specialist securities listed under Chapter 8 (which includes debt securities) of the Listing Rules have no obligation to implement the Model Code and therefore are not subject to the changes to the Model Code that have been made as a result of MAR.
The pragmatic approach of TISEA has led to increased interest in a listing on TISE by both new issuers and issuers seeking migrations of existing high yield bonds already listed on EU exchanges. Historically, Ireland and Luxembourg have been the markets of choice for high yield bonds but TISE has become a more attractive market for issuers as a result of MAR and many have either migrated existing debt listings or listed new high yield bonds on TISE in recent months.
TISE has been designated by the HM Revenue & Customs as a recognised stock exchange under Section 1005 of the UK Income Tax Act 2007. This designation is significant because qualifying debt securities listed on TISE are eligible for the 'Quoted Eurobond Exemption'. This allows an issuer within the UK tax net to make payments of interest on listed securities gross without deduction for tax.
- is an Affiliate Member of the International Organisation of Securities Commissions (IOSCO);
- is officially recognised by the Australian Securities Exchange; and
- is officially recognised by the German Federal Financial Supervisory Authority, BaFin (Bundesanstalt für Finanzdienstleistungsaufsicht).
While complying with international standards for recognised stock exchanges, TISEA has adopted a flexible and pragmatic approach to regulation.TISEA has developed the Listing Rules which place a premium on clarity and an appropriate level of corporate governance.
Unlike EU exchanges, TISE is not bound by or subject to any European Union Directives and, as a result, is able to be considerably more flexible in its approach. TISEA does not require an issuer to appoint a local paying agent in the Channel Islands and does not typically require securities to be entered into a clearing system. In certain circumstances it may also list an issuer without audited accounts. The fees levied by TISEA for listing debt securities are competitive with other Eurobond exchanges based in the European Union.
All Exchange listing and trading information can be accessed from TISEA's dedicated pages via TISE's "Market Data Management Service" (MDMS) and on its website at www.tisegroup.com. Trading Members of TISE may display orders for listed securities by sending their prices via MDMS and these prices are then disseminated to all Reuters users (access via TISE's MDMS background information platform pages).
Appointment of listing agent
In order to proceed with a listing a proposed issuer must appoint a listing agent to assist in relation to the listing procedure. The listing agent will be responsible for all communications and dealings with (including seeking approval of TISEA for the form and content of the listing document and for the preparation and filing with TISEA of the formal listing application and supporting documentation including director's declarations). In addition, a listing agent is able to apply to TISEA for derogations in the formal disclosure requirements applicable to the contents of the listing document.
General principles for listing on TISE
The Listing Rules are designed to ensure that investors have and maintain confidence in the securities market. In particular, in relation to the issuer and the debt securities for which application for listing has been made, TISE will consider whether:
- the securities are suitable for listing;
- the issuer is suitable for listing - this is also an assessment OCFL will make;
- investors are given sufficient information to enable them to make an informed assessment of the issuer and the debt securities;
- the listing of the debt securities is conducted in a fair and orderly manner;
- all holders of listed debt securities of the same class are treated fairly and equally; following a listing, there is sufficient disclosure of information to investors to ensure that they are kept fully informed of all factors which might affect their interests; and
- debt securities issued under chapter 8 are by their nature usually purchased and traded only by a limited number of investors who are knowledgeable about investment matters.
TISEA encourages prospective issuers and their listing agents to contact it at an early stage to seek informal and confidential guidance as to the eligibility of a proposed listing application. However, TISEA will charge a fee of £1,500 for this service (see section entitled “Listing fees” below).
TISEA's approach to listing high yield bonds
The following factors are considered by TISEA in relation to the listing of high yield bonds:
High yield bonds are listed as specialist securities under Chapter 8 (debt securities) of the Listing Rules. Chapter 8 requires that only investors deemed to be particularly knowledgeable in investment matters are qualified and permitted to hold such securities.
The securities must not be held by retail investors. High yield bonds usually have a high denomination, so this should not be an issue.
TISEA recognises that debt securities, and in particular high yield bonds, issued by special purpose vehicles and intra-group holding companies tend to be purchased and traded by a limited number of sophisticated, intragroup and/or institutional investors.
TISEA deems investors who:
- qualify as institutional buyers under Rule 144A; or
- (outside of the US) fall within the exemption from registration under Regulation S; or
- fall within institutional investor exemptions under the EU Prospective Directive,
- to satisfy this requirement of the Listing Rules.
TISEA adopts a pragmatic and commercial approach to disclosure, which focuses on issues material to an investor, without the lengthy disclosure which may be required for other stock exchanges operating under the EU Prospectus Directive. Disclosure requirements have been set at a level which is intended to provide investors with sufficient information to enable them to make an informed investment decision regarding the listed securities but without imposing unnecessarily onerous demands on an issuer.
The offering memorandum (Offering Memorandum) prepared by the issuer's onshore legal counsel will form the listing document for the purposes of the listing application together with the indenture and any other material documents in connection with the issue of the securities. TISEA are flexible in this regard and have taken the approach (if favourable to the Issuer) that subject to the indenture being summarised in detail in the Offering Memorandum, the indenture will not be required to form part of the listing document, however, a fully signed and executed copy will be required. Other material documents may also be treated in this way and if so, a derogation omitting the relevant documents from public inspection with a suitable rationale can be applied for.
The Offering Memorandum will contain detailed disclosure about, among other things, the terms of the bonds, the structure of the transaction, the issuer’s business, the industry in which it operates, audited historical financial statements, a management discussion and analysis of historical financial performance, disclosure regarding the issuer’s outstanding indebtedness, discussion of key risk factors and disclosure of other legal considerations (including under applicable tax laws) material to an investor’s decision to purchase the bonds.
OCFL will provide comments on the Offering Memorandum to ensure compliance with the disclosure requirements of the listing rules.
In the case of a migration from another exchange and/or where the Offering Memorandum has already been finalised, TISEA will accept a wrapper document which will wrap around the original Offering Memorandum and include the necessary statements and disclosures for TISEA (if not already contained in the Offering Memorandum).
Where any such information would not be applicable or appropriate to a particular issue an application for derogation from the formal requirements may be made to TISEA. TISEA may authorise the omission of certain information where it considers such information not to be applicable or is of minor importance. Derogation may also be permitted if disclosure would be seriously detrimental to the issuer or contrary to the public interest.
An issuer is required to provide three years of audited accounts under the Listing Rules, however OCFL is able to request derogations from this requirement where appropriate, such as in the case of issuers which are newly incorporated.
TISEA is flexible in its accounting requirements and will not require the adoption of international accounting standards or international financial reporting standards, provided that an accounting standard acceptable to TISEA is used.
The Listing Rules require that, where the securities of an issuer are guaranteed, the guarantor must also provide copies of its latest independently audited accounts to TISEA.
In respect of accounting requirements for guarantors, TISEA may not require standalone guarantor accounts for each guarantor (if they are all part of the same group) and group consolidated accounts may be acceptable.
TISEA will consider the guarantees being given and, provided that the net assets and revenue of the guarantors is not less than 75% of those of the group, the issuer can instead provide the group consolidated financial statements in lieu of individual financial statements for each guarantor.
If the guarantors are part of the same group but the 75% test is not met, lesser percentages may be considered by TISEA upon request and on a case by case basis.
Where the guarantors are not subsidiaries of the issuer or a related group company and/or the 75% test is not met, then TISEA may require standalone accounts for each guarantor.
Password Protected Websites
A number of high-yield issuers use password-protected websites to discretely distribute quarterly results and other announcements to bond market participants, without publicly publishing them.
Under the new MAR regulations all of the information previously only provided to investors and analysts, now are required to be publicly disclosed and therefore fully available to competitors.
TISEA permits the use of password-protected websites, subject to all information being made readily available to any qualified person likely to deal in the securities of the issuer.
TISEA requires such information to be provided upon approach to either the issuer or its advisers, without restriction of delay, in accordance with Listing Rule 2.2.1(c) (potential investors and the public must be given sufficient information to enable them to make a properly informed assessment of an issuer and of the securities for which listing is sought)).
Directors’ and Officers’ Questionnaires / Director Declarations
The directors and senior officers of the issuer (practically speaking, anyone who is listed in the “Management” section of the offering memorandum) will also provide counsel with information regarding each director or officer’s background and experience, independence, compensation, insider transactions, affiliate transactions and potential conflicts of interest. This information may be provided in the form of a questionnaire (D&O Questionnaire).
TISEA requires a form of director's declaration (Director Declaration) to be completed by each of the directors of the issuer.
When a D&O Questionnaire includes the same questions as are included in the Director Declaration, OCFL is able to liaise with TISEA in order to arrange for TISEA to accept a D&O Questionnaire rather than also requiring its own form of Director Declaration to be submitted, in order to avoid duplication for the client.
Where legal proceedings are referred to in the D&O Questionnaire relating to a specific period (for example, legal proceedings only in the last five years) TISEA would require a separate confirmation from each director and office relating to all legal proceedings (not just exclusive to a limited period) or that the D&O Questionnaire be amended accordingly prior to signing.
The requirement for a Director Declaration / D&O Questionnaire can be waived if the issuer itself is already listed on a recognised stock exchange or if the directors of the issuer are directors of another company which is listed on a recognised stock exchange.
The listing process
Stage 1: satisfying listing conditions
An issuer seeking a listing of high yield bonds on TISE must satisfy all the conditions for listing, including the provision of the following documents/information (amongst other things):
- director's declarations / D&O questionnaire;
- additional background information on the issuer and the transaction including, for example, a structure chart showing the issuer, its parent, the noteholder(s) and funds flow;
- the rationale for listing and who set up the structure; and
- information on the noteholder(s).
The issuer's professional advisors and the listing agent to the application are encouraged to discuss the suitability of the listing proposals with TISEA prior to making any formal application. See section entitled “Listing fees” below in relation to fees.
Stage 2: preparation of draft documentation
The listing agent, in conjunction with the issuer's professional advisors, will prepare drafts of the formal listing documentation for review and comment by TISEA.
The application documents include the following:
- the Offering Memorandum / Wrapper;
- the listing application (Appendix IB);
- the listing agent's declaration (Appendix IIB); the listing undertaking (Appendix III);
- a non-applicability & omitted information letter; a formal notice;
- a copy of the document constituting the debt securities (for example, the indenture);
- copies of the constitutional documents;
- copies of the authorising resolutions approving the issuance and listing;
- copies of any document securing, guaranteeing or subordinating the securities; and such additional documentation as may be required by TISEA.
Stage 3: initial application
Once the application documents are in substantially agreed form and the documents and background information have been provided, the listing agent will make the initial application on behalf of the issuer. TISEA will then issue its initial listing invoice. Once TISE has reviewed the initial application it will provide comments to the listing agent. The listing agent will then discuss the comments with TISEA and amend the documents if necessary.
Please note that TISEA will not release its comments on the initial application until its initial fee (referred to below) has been paid.
Stage 4: listing
If the Listing and Membership Committee approves the application and they have no further comments on the initial application, the listing documentation is then signed (where applicable) and filed and the debt securities are admitted to the Official List of TISE.
Once a listing has occurred an issuer must comply with the chapter 8 continuing obligations specified in the 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 debt securities.
For more information on continuing obligations, please refer to our client briefing entitled "The International Stock Exchange (formerly known as The Channel Islands Securities Exchange Authority Limited or CISEA): Continuing Obligations Chapter 8 Debt Securities".
TISE fees for the listing of high yield bonds under Chapter 8 of the Listing Rules are currently as follows:
- initial listing fee: £7,000 plus £1,000 per tranche or class for a stand-alone issue;
- annual listing fee: £1,150 per tranche/class of debt securities; and
- formal notice fee: £150.
The initial and first annual listing fees referred to above are payable in advance by the issuer. In addition, TISEA also charges the following:
- a bulk issuer fee of £1,000 where an application is made for more than one class/tranche of debt securities; and
- a partial redemption/delisting fee of £375 per class/tranche and a full delisting fee of £500 per class/tranche.
The following fees may also be charged:
- a fee of £1,500 which may be charged where an issuer seeks preliminary guidance on suitability from TISEA; and
- a fee of £2,000 which may be applied in more complex cases/applications.