The Channel Islands Stock Exchange (CISX) offers a streamlined and highly responsive listing process for a wide range of securities and Issuers. Part of the CISX's growth has been driven by the withholding tax advantages (the "quoted Eurobond" exemption from the requirements to withhold for UK tax) obtained by listing certain types of debt securities on its Official List. This has been particularly attractive for UK and Irish corporates and the private equity industry. For additional information about listing on the CISX, please refer to our client Briefings Listing on the Channel Islands Stock Exchange and Listing Debt Securities on the Channel Islands Stock Exchange.
The CISX has a pragmatic approach to disclosure requirements and the listing regime applicable to debt securities is remarkably flexible, while maintaining international standards of Issuer regulation. It is important, however, to consider certain aspects of a CISX debt listing during the structuring phase and the drafting of the instrument constituting the debt securities to be listed. Below are some of the points most commonly encountered during the listing of quoted Eurobonds and similar debt securities which, ideally, should be discussed with the Listing Sponsor at an early stage.
Transferability of debt securities
The transferability of debt securities issued in connection with certain deals, such as, for example, small and mid-cap management buyouts, is sometimes subject to the discretion or veto powers of a restricted number of stakeholders – for instance, the equity providers. Equally, debt securities issued by private companies in relation to which the applicable company law may restrict the offer of such securities to the public, are generally subject to the discretion of the Issuer's board of directors (or similar body) to refuse any transfer of such securities.
Under the Listing Rules of the CISX, the securities to be listed must be freely transferable and tradable and fully paid securities must be free from all lien. However, the Listing Rules allow for certain restrictions on transferability or compulsory redemption in cases where:
- the holding of listed securities may otherwise result in a regulatory, pecuniary, legal, taxation or material administrative disadvantage for the Issuer or the holders of the securities as a whole; or
- where there is a requirement to maintain a minimum holding per holder, as specified in the listing document.
In addition, the Market Authority of the CISX will consider the specific circumstances of the case and, if appropriate, it will allow a transfer restriction to remain in place provided that each person entitled to exercise discretion or veto power in relation to the transfer restriction undertakes to the Market Authority in writing that they will not exercise their discretion, or veto powers, in a manner that will prevent dealings in the listed securities from taking place on an open and proper basis. Other solutions are also available, but in circumstances where there is a commercial requirement to restrict transfers, it is advisable to liaise with the Listing Sponsor at the outset.
Size of the issue
Debt securities can be listed on the CISX as a single issue or as a series of issues under a programme subject, in each case, to a minimum capitalisation of £500,000 (or currency equivalent), with no upper limit.
Where the securities to be listed do not form part of a programme but there is a possibility that additional securities of the same class may be issued in the future, it is important to make allowance for such a contingency in the debt instrument and in the application for listing to be prepared by the Listing Sponsor. As a general rule, where the debt instrument provides for the issue of additional securities of the same class at some point in the future (for example, payment-in-kind notes), an application will be made with the CISX for the listing of an "unlimited amount" of securities and, when additional securities are actually issued, the Issuer (through the Listing Sponsor) will need to file a communication with the CISX, together with a fee of £125 for the formal notice relating to the additional issue. However, where the debt instrument does not provide for the issue of additional securities, any subsequent issues of securities of the same class will require an additional application including, among other things, a supplement to the listing document marked up against the disclosure requirements of the Listing Rules, and the payment to the CISX of a fee of £500 for the additional issue, as well as the standard £125 fee for the formal notice. In the latter case, Listing Sponsor fees for the preparation of the additional documentation will also be payable.
Special purpose vehicles
The CISX has become an exchange of choice for the listing of debt securities issued by special purpose vehicles (SPVs), particularly in the context of intra-group financing and private equity acquisition structures. The listing process for debt securities issued by SPVs is relatively straightforward and it can be summarised as follows:
- no minimum requirement for capitalisation of the SPV;
- simplified listing document to be filed in relation to the listing;
- no requirement for the SPV to have a trading history or produce audited accounts (unless it is required to do so under its constitutional documents or by the laws in its country of incorporation); and
- conditions for listing limited to the due incorporation of the SPV, the free transferability of the securities to be listed and the eligibility of the securities for deposit with a recognised settlement system, such as Clearstream and Euroclear.
In situations where the SPV's securities to be listed are held by a limited number of holders who do not contemplate the immediate trading of such securities, the CISX will consider approving alternative arrangements for the deposit and settlement of the securities, and typically provide derogations to permit direct settlement between the Issuer and debt securities holders.
As regards the Issuer's classification as an SPV, it is important to consider at an early stage the eligibility criteria. The Listing Rules define an SPV as:
"a company, unit trust or limited partnership formed for the specific purpose of issuing one or more classes or series of debt securities or asset-backed securities".
In accepting an Issuer as an SPV, the Market Authority will require that the Issuer was formed exclusively as a financing vehicle (the SPV Issuer may be an intermediate entity in a group structure or an entirely stand-alone entity) with the intention to issue debt securities – whether as loan notes, debentures or, in certain instances, preference shares. As a financing vehicle, the Issuer may hold underlying assets as part of its servicing of the debt issuance but the Market Authority will expect that no management or control of such underlying assets – or, indeed, of the affairs of the Issuer's group – takes place at the Issuer's board level. In other words, it must not be operated as a trading or operating company. It is still possible to list debt securities issued by a trading or operating company, although a more onerous listing regime will apply.
Finally, the absence under the Listing Rules of the requirement to produce audited accounts in relation to SPVs allows for the use of newly-formed companies or entities. It is important to note, however, that where the securities are guaranteed by a third party, the Market Authority will expect to receive a copy of the guarantor’s latest audited accounts.
Confidential documents and information
It is sometimes necessary to make the debt securities subject to certain terms contained in documents such as an investment agreement or a shareholders' agreement. These documents may also contain sensitive information about the Issuer's group and any business to be acquired, which the relevant parties may wish to keep confidential.
However, it is important to note that, under the Listing Rules, a listing document must contain certain details about the debt securities to be listed on the Official List of the CISX including, among other things, such information as is necessary for investors to make an informed assessment of the activities, assets and liabilities, financial position, management and prospects of the Issuer. Accordingly, where the debt instrument makes specific reference to other documents such as the investment agreement or the shareholders' agreement, the appraisal of which is necessary in order to make an informed assessment of the debt securities, the Market Authority will require that such investment agreement or shareholders' agreement is made available for inspection in accordance with the requirements of the Listing Rules.
While the CISX does not keep a public record of the listing document or any other document available for inspection – they have to be requested directly from the Issuer – the Listing Rules require that all the relevant documentation comprising the listing must be available for inspection at a place acceptable to the CISX (typically, at the registered office of the Issuer or of the Listing Sponsor) for at least 14 days from the admission of the debt securities on the Official List of the CSIX. During this period, anyone may be able to request access to the documents available for inspection, although it is sometimes possible (where there is no immediate intention to offer the debt securities listed to the public) to obtain a derogation from the CISX in order that only the debt securities holders have these inspection rights.
Where the derogation referred to above is not available and in order to avoid having to disclose sensitive documents and information, it is advisable that the relevant provisions applicable to the debt securities are stated in full in the debt instrument so that they can be read in isolation, as opposed to making reference to the investment agreement or the shareholders' agreement.
Bedell Channel Islands Limited
Bedell Channel Islands Limited (BCI) was admitted as a Category 1 listing member of the CISX in 1999, which enables it to act as a listing sponsor on all categories of listings. BCI has experience of acting as sponsor and/or adviser to a significant number of CISX listed debt securities and investment funds. In particular, BCI has experience in listing asset-backed securities, convertible bonds, PIK notes, loan notes and quoted Eurobonds. Recent Issuers range from major UK corporates taking advantage of the quoted Eurobond exemption to mining and oil exploration companies seeking a listing to satisfy investor requirements. We have also seen an upsurge in instructions from private equity and other investors in the context of acquisition structures.