An issue of bondholder rights
The extent of bondholders’ rights in relation to a borrower has been an issue for some time, given these investors’ growing demands for minimum covenants, improved disclosure and more rigorous documentation standards.
For these reasons, the recent battle between MyTravel and its bondholders bore all the potential to serve as an important test case. However, while it brought the whole question of bondholder rights into the courtroom, it also served to emphasise how unclear we all still are over the ‘economic interests’ of bondholders when a borrower gets into trouble.
In the recent case, an initial ruling in the High Court that owners of MyTravel’s convertible bonds should not have a say in the tour operator’s restructuring of £800m of its unsecured debt was a severe blow to the investors who had demanded greater consultation on the restructuring and better terms. More importantly, the ruling that the subordinated bondholders did not have ‘sufficient economic interest’ to make them ‘a party to the scheme’ immediately raised serious concerns among the owners of bonds in general since it could seriously negate their negotiating power in similar, future cases.
However, this ruling was overturned only last month in the Court of Appeal and a consensus was subsequently reached with MyTravel and the committee representing the bondholders; the company also agreed to pay their legal costs in the case.
The end result has clearly indicated that there is no shortcut in a reorganisation, which completely bypasses bondholders’ interests, and that their voice should be sought in the event of a capital restructuring. As the court found, the subordinated debt holders’ rights may be different from those of other creditors, but this does not mean they can be ignored.
While the Court of Appeal did not rule that the bondholders ‘had no economic interest’ in organisations, it did not say that they did, again failing to clarify the status of bondholders.
For corporate treasurers the message is clear. Bondholders are important stakeholders in a company. They can be influential and should the company seek a restructuring, they can become even more powerful. Treasurers and their lawyers must remember this at the outset when negotiating bond terms and the rights and powers allowed to their bondholders.
LIZ SALECKA
Editor
ASB responds to carve-out
The Accounting Standards Board (ASB) has issued guidance for entities in the UK and the Republic of Ireland preparing their financial statements in accordance with the European Union-adopted International Financial Reporting Standards (IFRS).
Norman Tribble, Honorary Life President (1927- 2005)
If there was one man who could claim credit for the creation and establishment of The Association of Corporate Treasurers it was Norman Tribble. The treasury function began to emerge as an important area of corporate activity in the UK in the 1970s although it had for a long time had a position of considerable standing in US companies – and indeed some of the largest UK companies such as Shell, BP, ICI and Unilever had a separate treasury function for many years.
These are a selection of loans announced recently. The details, updated to the middle of last month, were supplied by Thomson Financial
Securities Data and other sources.
Pan-European corporate treasurers may question whether they are truly operating in a single Europe. But four major European bodies are now working on a number o of EUwide regulatory initiatives to ensure a more level playing field across the continent. Pierre Poncet reports.
One of the best words to describe the equity markets over the past year is ‘mixed’ but, despite this, new issuance levels have been at their highest since 2000.
Pensions financing is an oddity – and one for which normal financial laws do not apply. For example, £100 of equities is commonly felt to be worth more than £100 of bonds – but this is obviously a misleading concept. Company treasurers do go to great lengths to micro-manage their businesses’ interest rate and exchange rate risks. So why do they not apply the same principles to pension fund management?
The 2004 International Cash Management Survey revealed a continued focus by treasurers on yield and investment performance, which is perhaps unsurprising given the still relatively low level of global interest rates. Yield was again seen as the dominant factor for treasurers when selecting an asset manager with 77% of respondents identifying long-term performance as the key criteria used.
Corporate treasurers, regulators and bankers all want to see greater transparency, homogenisation and the creation of a level playing field for cross-border payments and cash management sooner rather than later.
There are three main types of treasury structure but regional treasury centres are predominant. The trend is towards further centralisation – moving from localised treasury operations to a regional structure. The major driver for this has been cash pooling and the movement has been facilitated by technology. Other key factors that have influenced the current trend towards centralisation are new regulations such as the International Accounting Standards and Sarbanes-Oxley. The benefits of centralisation are cost savings, improved management control, exposure netting, economies of scale and staff specialisation. The process of centralisation should involve a project management approach and ensure that senior management buy-in has been secured before the project’s commencement.
Financial information is the lifeblood of most organisations. A company with a full order book which, at the same time, is straining its borrowing limit will eventually face serious consequences ranging from having to negotiate emergency, and potentially very expensive, financing to bankruptcy. But if that company manages its cash and working capital efficiently, it will be able to foresee any potential cash squeeze, and should be able to navigate itself through this situation at low cost and with less risk. The deployment of straight-through processing (STP) could play a critical role in achieving this.
Cadbury Schweppes’ €1.2bn fixed and floating rate bond issue in June 2004 secured the confidence of The Treasurer’s voters and impressed the Deals of the Year judging panel as a mainstream financing that was well executed and very favourably priced for the issuer.
Invensys’ seven-year high-yield bond issue in two tranches – a US$550m issue and an €475m issue - was one of the three parts of a major recapitalisation. It was commended by The Treasurer’s voters and its Deals of the Year panel for representing a successful transaction, despite being a complex and particularly large capital fundraising launched in difficult market conditions for the company.
When supermarket group Tesco came to the equity market in January 2004, it was not with a typical cash placing.
The €671m mandatory convertible launched by Swiss Re, the world’s second largest reinsurance group, in July 2004 has the potential to be a market changing deal.
The Vaillant Hepworth transaction, which included a €325m term loan and a €300m revolving credit facility, was arranged to refinance €830m of leveraged acquisition facilities. It was recognised by The Treasurer’s voters and its Deals of the Year panel of judges for its speed of execution and the fact that it was nearly 60% oversubscribed.
Pub group Mitchells & Butlers launched the largest-ever pub securitisation in November 2003. The deal introduced new structures and was the first-ever whollymanaged pub securitisation.
OFR requirements released
New Company Law regulations are being laid before Parliament to make the Operating and Financial Review (OFR) a compulsory requirement for quoted companies.
The nature and uses of NDFs
Non-deliverable forward contracts (NDFs) are an important tool for managing emerging market currency exposures. Their development has been fuelled by the rising importance of emerging market economies, and the presence of regulations and restrictions on access to domestic financial markets.
The Treasurer looks at the overall statistics for the October 2004 sittings of the MCT, AMCT and Cert ICM examination results. Also included is a list of all the students who passed.
As globalisation gathers pace, more organisations are looking for people to move overseas with their companies, and for many UK professionals, the idea of working in Europe for a couple of years is an increasingly attractive option.
