Introduction

Decree-Law No. 29/2014 amending for the second time Decree-law No. 69/2004 of 25 March, setting out the rules applicable to securities of a monetary nature referred to as commercial paper (debt securities with maturity of less than one year) was published on 25 February 2014, to take effect 30 days after publication.

The main purpose of the amendment was to stimulate the commercial paper market, promoting the use of this funding instrument, and the use of commercial paper by a larger number of issuers, to boost the markets of the issue, admission to trading and negotiation of commercial paper, thereby contributing to expand corporate funding alternatives.

Having regard to these purposes, the decree-law under consideration reviewed the requirements  of  the  issue  of  commercial  paper  with  unitary  value  of  less  than €50,000.00,  and  created  the  institution  of  the  issue  sponsor  that,  in  addition  to undertaking to retain part of the issue, will, in particular, be tasked with establishing the market and assisting in the compliance with the issuer’s duty of information.

The legal scheme provided for in Decree-law No. 29/2014 applies both to the issue of commercial paper decided on a date after its entry into force and to issues made under new or renewed programmes on a date after its entry into force.

Requirements for the issue of commercial paper

Commercial companies or civil law companies under commercial form, cooperatives, public companies and other legal persons governed by public or private law have the capacity to issue commercial paper.

In order to be able to issue commercial paper those entities must fulfil one of the following requirements:

  • Presenting the issue or issue programme credit rating or the short term credit rating of the issuer, attributed by a rating agency registered with the European Securities and Market Authority (ESMA) or the credit rating issued by an External Rating Agency (ECAI), registered with the Bank of Portugal;
  • Obtaining, in favour of the holders, a guarantee ensuring compliance with the payment obligations arising from the issue or the issue programme, which may be provided by a duly authorised credit institution, by an entity whose equity is at least twice the value of the guaranteed issue or by resorting to systems, schemes or guarantee lines, support or incentives, including mutual guarantee schemes;
  • Being the issuer of other securities admitted to trading on a regulated market;
  • presenting, after the issue, a financial autonomy ratio, under terms to be defined by regulation of the Securities Market Commission, with the exception of credit institutions, financing companies, insurance companies and pension fund man- agement companies,;
  • There being a sponsor of the issue holding at least 5% of the issue until maturity.

In light of these requirements it is now possible to issue commercial paper not limited to the obtaining of funds and regardless of the level of equity, if the capital structure of the issuer enables to ensure a financial autonomy ratio considered adequate under terms yet to define by the Securities Market Commission, and the guarantee and risk assessment of the issue are now subject to more flexible conditions.

In furtherance of the purposes set forth above, Decree -law No. 29/2014 exempts from complying with the requirements referred to above the issue of commercial paper with an unitary value of €50,000.00 or more, or its euro equivalent or the subscription of which is made exclusively in minimum lots of €50,000.00 or more, or its euro equivalent, as well as the issue of commercial paper fully subscribed by qualified investors.

The issue of commercial paper is subject to the principle of tipicality, for which reason the issue of securities of a monetary nature with maturity of less than one year that fail to comply with the provisions of Decree-law No. 29/2014 is prohibited.

The commercial paper may be issued as a single issue, or in continuous issues or in series, in the registered or bearer form, and shall observe the book entry form and ownership thereof must be registered in accordance with Article 61 et seq. of the Securities Code.

Duty of information

Prior to the admission to trading of the commercial paper, the issuers must draw up an information note on the issue or issue programme, which must contain information concerning its financial, economic and financial individual and consolidated position, a s well as concerning the group in which they are included, as the case may be, and the characteristics of the issue with the content provided for in model of information note published as an annex to Decree-Law No. 29/2014.

The purposes of the introduction of this model of information note attached to the legal framework of commercial paper is to afford more certainty to the preparation stage of an issue and facilitate comparability in the process of analysis by investors. In line with this trend of accreditation of commercial paper and of the protection of investors, Decree -law No. 29/2014 established the obligation of the issuer of commercial paper admitted to trading on a regulated market to immediately inform the market of any fact or exact information that he may become aware of and that are not public, provided there is a likelihood that they may appreciably and significantly influence the issuer’s capacity to reimburse the issue. On the other hand, if the issue is not meant to be admitted to trading on the market, the said information must only be transmitted to the holders.

The introduction of this duty of inside information to the market entailed the need to amend Article 250-A(3) of the Securities Code, which totally exempts issuers of commercial paper from providing any information to the market, so as to exclude from its condition debt securities with maturity of less than one year.

The information note of public offer of commercial paper specifically directed at persons residing or established in Portugal is subject to approval by the Securities Commission, which is also tasked with ordaining the suspension or withdrawal of the offer if it founds that the latter is illegal or breaches a regulation.

Regulation and Supervision

The rules regulating the aspects associated to commercial paper is the duty of the Securities Market Commission, which is also tasked with overseeing compliance with the legal scheme provided for in Decree-Law No. 29/2014 and monitor the markets at which commercial paper is traded.