High Yield and Convertible/Exchangeable Bonds

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.
  • Simplified listing/approval process - listing the debt of a Jersey issuer on a non-EU market, such as the Channel Islands Stock Exchange (or CISX) means that UKLA approval will not be required and any offering document will not need to comply with EU Listing/Prospectus Directives.
  • 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.

Ogier's high yield and convertible bond transaction experience

Ogier lawyers have significant expertise in this growing sector of the bond market.  Our transactional experience includes the following high yield and convertible bond deals:

  • advising Avis Budget in March 2013 on the high yield bond financing (Jersey issuer) for its USD 500 million cross-border acquisition of Zipcar: click here to see more.
  • acting for Consolidated Minerals Limited (Jersey issuer) on its USD 405 million high yield note issue in April 2011 (due in 2016).  The notes were admitted to listing on the Official List of the Luxembourg Stock Exchange and admitted for trading on the Euro MTF market
  • acting for Autonomy plc in March 2010 on its GBP 500m convertible bond issue where the Autonomy plc was the bond issuer
  • acting for Aegis Group plc in April 2010 on its GBP 190 million convertible bond issue where the Jersey company was the bond issuer: click here to see more.
  • acting for Intu Properties plc on its GBP 300 million 2.5% guaranteed convertible bond issue where a wholly-owned Jersey subsidiary of Intu was the issuer: click here to see more. 
  • advising Taiwan-based Zhen Ding Technology Holding on its debut convertible bond issue which raised USD 175 million: client here to see more.
  • acting as BVI counsel to Sound Global Ltd (Singapore issuer) in relation to the issue of USD 150 million 11.875% senior notes due 2017 guaranteed by its BVI subsidiary.  The Notes were listed on the Hong Kong Stock Exchange: click here to see more. 
  • acting as Cayman counsel to TPK on its USD 400 million aggregate principal amount of Zero Coupon Convertible Bonds due 2014.

Advantages of using Ogier

As a full service firm, Ogier is able to offer a coordinated and cohesive approach to the provision of integrated legal and fiduciary advice to clients and their onshore advisors.

Ogier can offer all legal and administration services (including director services) which a Jersey issuer may require.  We have extensive offshore DCM expertise and experience, having acted to establish and administer significant commercial paper conduit vehicles and debt issuance programmes for global banks and financial institutions.

Each of the jurisdictions in which we operate - BVI, Cayman, Guernsey and Jersey offers:

  • Economic and political stability
  • Mature, well respected legal systems
  • Track record of product and service innovation
  • Skilled and responsive workforce

In addition, Jersey, Guernsey, Cayman and BVI legal advice is offered from our Hong Kong office to the Asia Pacific region.

Summary

There is an established track record of corporates in the US, Europe and Asia successfully using offshore issuers for high yield/convertible bonds to meet M&A financing requirements.

As a less expensive form of financing, M&A and other event-driven corporate debt issuance, offers real opportunities for strategic M&A in the current market.

 

 

 

About Ogier

Ogier provides practical advice on BVI, Cayman Islands, Guernsey, Jersey and Luxembourg law through its global network of offices. Ours is the only firm to advise on these five laws. We regularly win awards for the quality of our client service, our work and our people.

Disclaimer

This client briefing has been prepared for clients and professional associates of Ogier. The information and expressions of opinion which it contains are not intended to be a comprehensive study or to provide legal advice and should not be treated as a substitute for specific advice concerning individual situations.

Regulatory information can be found at www.ogier.com

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