Legal Update for Corporates - Simmons & Simmons

Legal Update for Corporates

Finance & Treasury

26 September 2019

Tapping the financial markets

Equity, debt, asset-backedand hedging

26 September 2019

© Simmons & Simmons LLP 2018. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities.

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Speakers

Marieke Driessen

Partner, Financial Markets

Simmons & Simmons Amsterdam

T +31 20 722 2308

E [email protected]

Peter Voorhees



T +31 20 722 2330

E [email protected]

Jeroen Bos



T +31 20 722 2343

E [email protected]

Rezah Stegeman



T +31 20 722 2333

E [email protected]


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Contents

Context

Equity

Debt

Asset-backed

Hedging

Context


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Context

Corporate finance

– Assets:

Real estate

Projects

Claims

– Liabilities:

Equity (EV)

Debt (VV)

Asset-backed

Hedging


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Context – hot legal topics

Legal sources:

EU law: Prospectus Regulation, Securitisation Regulation, PRIIPs, MiFIDII, Market Abuse Regulation, CRD/CRR, BRRD, Benchmark Regulation, EMIR, …

Dutch law: books 2, 6, 7 Dutch Civil Code, Corporate Governance Code, Wet financieel toezicht, Euronext Rulebooks, case law (Ondernemingskamer, NCC)

English law

US law: Securities Act, Securities Exchange Act (Rule 144A, Reg S, 10b5 letter), US Risk Retention rules.

Future: benchmark reform, ESG, regulatory capital (banks, investment firms, insurers), deregulation in US, Brexit, proposal to abolish contractual assignmentlimitations, European conflict of law rules regarding assignment of receivables

Equity


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Equity capital markets

IPO

Secondary listings

Dual listings

Employee stock option plans

Share buy-backs

Public offers

Role of US law in equity capital markets


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How is equity raised?

IPO PROCESS: PARTIES:

Getting issuer IPO-ready

Issuer appoints arrangers

Issuer and arrangers appoint legal counsel, auditors, other third parties

Due diligence, corporate governance, protective measures, publicityguidelines, prospectus etc.

Investor meetings, analyst research reports, site visits

Announce to market, price discovery, price range

Roadshows, (accelerated) bookbuilding

Pricing

Allocation

Signing

Closing, settlement, listing

Issuer (boards, works council)

Arrangers, managers, dealers

Agents (paying agent, calculation agent, listing agent), opinion/comfort providers, rating agencies

Analysts

PR

Clearing systems

Regulatory authorities (AFM, …)

Stock exchange

Rating agencies


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Tips & tricks for in-house counsel/treasury

Role of in-house team

Covenants in finance documentation

Disclosure obligations

Press releases

Corporate governance; corporate approvals

Prospectus rules: disclosure, financial, non-financial

Sanctions legislation

Mandatory prepayment – Exit Upon the occurrence of:(i) any Flotation; or(ii) a Change of Control; or(iii) the sale of all or substantially all of the assets of the Group whether in a single transaction or a series of related transactions,the Facilities will be cancelled and all outstanding Utilisations and Ancillary Outstandings, together with accrued interest, and all other amounts accrued under the Finance Documents, shall become immediately due and payable.

Debt


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Debt financing

Loans:

– bilateral, club deal, syndicated

– in-house standards, LMA-style, LMA light

– secured/unsecured

– asset based: real estate, projects, aircraft, shipping, receivables

Debt: programmes, stand alone issuances

– Plain vanilla: fixed rate; floating rate

– Structured bonds: linked

– High yield bonds

– Convertible bonds

– Regulatory capital

– Commercial paper

– Schuldschein, NSV

– Asset-backed bonds

– Project, green, social, water … bonds


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How are bonds issued?

PROCESS: PARTIES:

Issuer resolves upon funding

Issuer appoints arranging banks

Issuer appoints legal counsel, auditors, other third parties

Banks look for investors: private placement vs public offering: roadshows, (accelerated) bookbuilding

Pricing

Signing subscription agreement

Satisfaction conditions precedent

Closing and settlement

Listing

Rating

Issuer (boards, works council)

Arrangers, managers, dealers

Agents (paying agent, calculation agent, listing agent), opinion/comfort providers, rating agencies

Trustee, noteholder representative

Clearing systems

Regulatory authorities (AFM, …)

Stock exchange

Rating agencies


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Tips & tricks for in-house counsel/treasury


Dutch law vs English law vs US law

Covenants in other documentation

Disclosure obligations

Press releases

Corporate approvals

Undertakings, Events of Default

Disclosure rules: prospectus

Sanctions legislation


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Tips & tricks


Example of debt covenants:

Negative pledge: So long as any of the Notes remains outstanding, the Issuer will not, and will ensure that none of its Material Subsidiaries will, create or permit to subsist any Security upon the whole or any part of its assets or revenues, present or future, to secure any Indebtedness, except for Permitted Encumbrances, unless:(A) the same Security shall forthwith be extended equally and rateably to secure all amounts payable under the Notes, any related Receipts and Coupons and the Trust Deed to the satisfaction of the Trustee; or(B) such other Security or guarantee (or other arrangement) as (i) the Trustee in its absolute discretion deems not materially less beneficial to the interests of the Noteholders or (ii) shall be approved by an Extraordinary Resolution, shall previously have been or shall forthwith be extended equally and rateably to secure all amounts payable under the Notes, any related Receipts and Coupons and the Trust Deed.

Asset-backed


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Asset-backed

Transactions for corporates

Receivables financing transactions (e.g. factoring, reverse factoring, tradereceivables securitisations, secured lending deals)

Securitisation: residential mortgage loan receivables, buy-to-let loan receivabes, commercial real estate receivables, car lease receivables etc.

Covered bonds (financial sector)

Loan portfolios sales (e.g. legacy portfolio sales, forward flow arrangements)


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Tips & tricks


Focus on relevant receivables:

– how are agreements documented (General T&Cs, bespoke contracts)

– governing law

– do receivables result from licensed activity

– is set-off allowed or excluded

– confidentiality provisions

Wider questions:

– do other finance documents (loan docs or note docs) allow for sale of assets

– are relevant collection accounts part of a cash pooling system

– who is involved in client contact (need to involve sub-servicers?)

– compliance with reporting requirements

– need to achieve certain accountancy treatment

Derivatives


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Derivatives

Types of contracts

Finance linked swap

– To hedge a borrower’s interest rate or currency risk under a particular debtinstrument

M&A related swap

– Deal-contingent FX forward transaction

Repurchase transactions (repo)

– Short-term secured funding (can be rolled over); or

– Financing; hedges both the credit and liquidity risks of lenders

Documentation

– ISDA Master Agreement (ISDA)

– Global Master Repurchase Agreement (GMRA)


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Documentation


The primary documents involved in a loan hedging matter are:

– Facilities Agreement

– Intercreditor Agreement

– ISDA (Master Agreement and Schedule)

– Confirmations

– Hedging letter

– Sets out the hedging policy/ hedging requirements

The standard ISDA provisions would cut across the negotiated position under the facility agreement and other finance documents if not amended.

It is often the case that the hedging agreements are only presented at the end of a transaction, as a condition precedent to drawdown of the loan and as a 'standard' document to be executed.


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Tips & tricks


Stand-alone document or loan linked?

What to think about in relation to hedging requirements:

– What percentage of the loans will be hedged?

– When will the hedging terminate?

– Is over-hedging permitted?

– When are the borrower and the hedge counterparty allowed to terminate or close out the hedge?

What to think about in relation to:

– Events of Default/Termination Events

– termination of the hedge and repayment of the loan

– ring-fencing

– consistency between the finance documents

Consider EMIR (now one-sided reporting)

This document is for general guidance only. It does not contain definitive advice. SIMMONS & SIMMONS and S&S are registered trade marks of Simmons & Simmons LLP. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated practices. Accordingly, references to Simmons & Simmons mean Simmons & Simmons LLP and the other partnerships and other entities or practices authorised to use the name “Simmons & Simmons” or one or more of those practices as the context requires. The word “partner” refers to a member of Simmons & Simmons LLP or an employee or consultant with equivalent standing and qualifications or to an individual with equivalent status in one of Simmons & Simmons LLP’s affiliated practices. For further information on the international entities and practices, refer to simmons-simmons.com/legalresp. Simmons & Simmons LLP is a limited liability partnership registered in England & Wales with number OC352713 and with its registered office at CityPoint, One Ropemaker Street, London EC2Y 9SS. It is authorised and regulated by the Solicitors Regulation Authority. A list of members and other partners together with their professional qualifications is available for inspection at the above address.

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Questions?


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