M&A bond financing: offshore high yield and convertible bond issuance

The first half of 2013 has seen private equity sponsors and corporate borrowers continue to look to the corporate bond and debt capital markets, as an alternate source of funding to bank lending, for M&A and joint venture project activity.

Appetite for this kind of borrowing together with strong investor demand has resulted in the availability of attractive financing options.  This has significantly improved the deal-making environment for cross-border M&A activity in 2013.  Commentators expect continued activity in this market well into 2013 and 2014.

Bond issuing vehicles

Offshore bond issuing vehicles have been used by multi-national corporates and private equity houses for a number of years now as a means of obtaining access to global debt capital markets.  The most common types of debt funding instruments issued by Jersey incorporated issuers to raise acquisition financing are:

  • high yield bonds; and
  • convertible bonds.

Jersey ‘cash box’ company structures have also continued to prove popular, in an M&A context. This typically involves PLCs raising money either through a placing of shares, a rights issue or by the issuance of a convertible bond.  For more information on Jersey cash box structures please click here to see our related briefing.

Jersey regulatory approvals

Jersey incorporated issuers of high yield and convertible bonds will require a standard form Jersey regulatory approval to the issue of shares which will be obtained on incorporation.

Regulatory approval in Jersey is required for the circulation of the offer for, and the issue of, the bonds. The Jersey bond issuer may also need consent to raise money in Jersey. However, such regulatory consents can usually be obtained from the Jersey authorities in a very short time-frame and, accordingly, will not significantly impact or delay any M&A transaction timetable.

Advantages of a Jersey bond issuer

 Reasons for using a Jersey incorporated issuer for M&A-driven DCM transactions include:

  • Investor familiarity - large multi-nationals which utilise special purpose issuers have a myriad of market and regulatory requirements to satisfy. Jersey issuers provide both a level of flexibility and familiarity to corporate bond market investors which sponsors target in pan-US/European offerings.
  • Tax neutrality for Jersey issuer - 0% rate of Jersey income tax, no capital gains tax or withholding tax in Jersey and no stamp duty on the issue or transfer of shares.
  • Although incorporated in Jersey, Jersey issuers can be resident in the UK provided it is managed and controlled from the UK. There is no need to appoint Jersey resident directors.
  • Jersey has an established legal framework based on established English law principles but with a greater degree of flexibility.
  • Speed of incorporation - a Jersey issuer can usually be established within 24 hours.
  • Speed of the regulatory authorities in issuing the relevant consents means that even the most demanding timetables can usually be met.
  • Quality of financial services providers - Jersey has had a thriving financial services sector for over thirty years, and there is a strong body of law firms and administrative service providers on the Island.
  • Jersey is a member of the OECD and on its White List of Offshore Finance Centres.