Demystifying the bond issuance process

What’s involved when you issue a bond? On Wednesday 9 October some key participants in the bond issuance process discussed how to approach issuing a bond for the first time.

The bond issuance process

The discussion focussed on 7 keys steps to issuing a bond.

1. Understand what information is required

The first place to start is to understand what information is required. You may need to look at the following issues:

  • Do you already have sufficient historic statutory accounts for the issuing entity?
  • If there have been any changes to the business, do you have appropriate proformas?
  • If you plan to issue in multiple jurisdictions, are your accounts prepared appropriately?
  • If you are pledging any security, do you have sufficient evidence of title?

Some of the required information may take time to collect so early preparation is always recommended.

Start by speaking to your legal team, and it may also be useful to speak to your auditors at this point too. Both can help you understand the information requirements and what gaps may exist.

2. Ask practical questions

When you appoint your legal, accounting and book runner teams you need to ask them direct questions such as:

  • How long will this take?
  • How much will this cost?
  • Where are the bottle necks?

This will help you to understand the timeline and, importantly, the pinch points.

3. Contact a rating agency

Many issuers will already have a credit rating. If your company doesn’t, or the issuing entity is not rated, you may need to select a rating agency and work with them to get a rating. Depending on the complexity of the business and their familiarity with your company, this may take time. There may also be a discussion about what is needed to improve the rating through, for example, changes to the capital structure.

4. Prospectus

This is the main marketing document and should contain verified information about the company. It can take a considerable amount of time and effort to verify what is in the document – this is done predominantly through working with your legal team. The prospectus can often go through a number of updates and you should ensure that you factor in this time.

5. Going to market

This is mainly done via a roadshow where investors are given an opportunity to ask questions and review the material you have produced. Be prepared as they will ask lots of questions! You will typically have 24-48 hours to respond so you need to make sure you can lean on your advisors and if possible have someone back in the office who can help.

6. Pricing

Depending on the type of deal (e.g. non-deal roadshow, deal roadshow or country of issuance) you may have anything from 2-3 days to 10 days to price.

7. Signing legal documents and settlement

Typically, all the legal documents need to be signed two days after the deal has been completed. The funds need to settle to the issuer, normally net of fees, within five days of the deal being completed.

Key advisors

Having talked through how to issue a bond we asked the key advisors to explain their roles and what treasurers can do to make the process run smoothly. Here is what they said:

Legal team

It’s good to have a preliminary conversation with your legal advisors early on. If you have already issued a bond then you can update/work with the documents you have previously prepared or if you have audited accounts this is a good place to start. 

Work with them on the prospective and the presentations – it is essential that there is consistency between the roadshow presentation materials and the prospectus – and your legal advisors should review all documentation together.

Credit rating agency

Companies need a rating for two key reasons:

  1. For regulatory reasons especially when working with banks and insurance companies

  2. For funds – either for index purposes or for criteria purposes

But how does it work in reality? If you need a rating for the first time and are an established company then you are likely to be able to provide financials and management information and you can usually receive a rating within two weeks. If you have never been rated before this can take longer – normally 3-4 weeks. As you become a more established issuer the lead time shortens.

The key message from the credit agency perspective is to talk to your analyst and explain what you are raising funds for - for example, acquisition or restructuring. Everything you provide them is confidential and it is always better to be open and transparent. 

Accounting requirements

Auditors would normally provide a comfort letter to say that all the information in the prospectus has been verified and that management has provided suitable reps and warranties. In addition to the comfort letter, they would also be involved in the detailed financial disclosures, so the sooner you contact them the better.

Book runner

The book runner co-ordinates the different workstreams. They need to be involved from the very beginning and have an understanding of the specifics of the transaction. They would look at a number of areas including:

  • Which entity is raising funds and what the proceeds are being used for.
  • The type of bonds to be issued.
  • When you want to issue.
  • What’s happening generally in the bond market and in your industry sector.

Crucially they provide a timetable and help align the investors (such as fund managers/pensions managers) with the issuer’s expectations.

Top tips

Finally, we asked the panel for their top tips for issuing a bond:

  • Lean on your professional advisors – they are there to help and support you.
  • Involve your advisors in the process as early as possible.
  • The co-ordination of the prospectus is extremely time consuming, especially if you are doing it for the first time, and you need to ensure you factor in enough time to do this.
  • Don’t forget about the post trade considerations over the next 10 years, for example, the need to maintain good stakeholder relations.

Our thanks go to Slaughter and May for hosting the event and to our speakers: Courtney Huggins, Treasurer, Logicor; Oliver Storey, Partner, Slaughter & May; Gianluca Spinetti, Senior Director, Fitch Ratings; Sunil Kainth, Natwest Markets; James Miller, PwC and Sean Anderson, Head of Tax & Treasury, University of Oxford.

 

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