Medium Term Notes - Quarterly Update - Q3 2018
We have continued to expand the range of applications for MTN programmes in the last quarter.
In the past some of our corporate clients have used the proceeds of MTN issues to refinance acquisition funding or to make post acquisition contingent payments to vendors. During the quarter we established an MTN programme that formed part of a financing package for the upfront acquisition payment. The attraction of the programme to the acquirer was its flexibility relative to funding offered by financial institutions. The challenge was the uncertainty of funding, which was an issue for the acquirer and indeed the vendors. In the event, the process of dealing with the banks providing senior asset based lending facilities took longer than expected and we were able to build up the loan note subscription book to the point at which the funding was sufficient. Going forward we are working with cornerstone investors to provide greater visibility of funding. We are also developing underwriting structures.
We are now receiving interest from private equity firms that wish to arrange for their portfolio companies to establish MTN programmes. The programmes could be for the purposes of refinancing acquisition debt or raising development capital. The interesting aspect of such transactions is the degree to which the sponsor’s brand name, due diligence process and ability to commit further equity funds make each transaction more attractive to investors than if the issuer did not have such institutional support. The feedback we are receiving from investors suggests that they welcome the opportunity to invest in debt instruments that stand above a private equity firm’s equity interest. For the private equity firms, MTN programmes represent a flexible alternative to funding from banks and credit funds. We are now developing relationships with specific sponsors with a view to arranging a series of transactions on templated terms as they expand their portfolios.
Coordination with AIM Placings
We had previously arranged a number of MTN programmes for AIM-quoted companies, but in the last quarter we had our first experience of co-ordinating an issue of loan notes alongside a secondary placing of shares. This involved working closely with the company’s broker. The process was complicated by the requirement to bring prospective investors inside. The registering of insiders has become more stringent in the last year or two. More importantly, the purpose of the process inevitably limited the offer of notes to investors. A further difficulty was that some of the equity investors began to link the two transactions and make completion of the loan note issue a condition of their equity investment. These matters were resolved when the company released an RNS stating that it was in discussions with investors about the equity and loan note fundraisings. This greatly simplified the offering process and both transactions were completed successfully. We even found that a number of our loan note investors made a material contribution to the equity subscription book. In future, we will encourage issuers to make announcements if there is a likelihood that inside information regulations will restrict the offering process.
There are a number of regulatory changes coming into effect that aim to modernise the regime governing the publication of prospectuses and to make it easier and more efficient for businesses to raise funds publicly.
Historically, our offerings under MTN programmes have been exempt from the requirement to publish a prospectus under the terms of the EU Prospectus Directive (2003/71/EC) through the application of one of the following exemptions:
- the Issuer will only offer up to the equivalent of €5m to investors in the EU under the MTN programme in any 12-month period; or if the €5m limit will be exceed
- the minimum subscription amount per investor is the equivalent of €100,000.
The new EU Prospectus Regulation (EU) 2017/1129 came into force on 20 July 2017 with the aim of replacing the 2003 Prospectus Directive. Most of its provisions will apply from 21 July 2019, but one set of measures apply from 21 July 2018.
Under the new regulations, the threshold under (i) above has been increased by exempting offers of securities to the public not exceeding €8m over a 12-month period. The threshold under (ii) above remains unchanged.
The changes in the regulations are particularly relevant to the establishment of new programmes where the inclusion of private investors is helpful. Not having to comply with a minimum subscription amount of €100,000 equivalent enables private investors to achieve portfolio diversification and reinvest interest and redemption payments efficiently. The changes are less relevant to larger and more established programmes, where the involvements of institutional and non-EU investors are more significant.
For further information please contact Daniel Lawson (+44 (0)20 7518 9899 firstname.lastname@example.org).