28 July 2009
28 July 2009
Charlotte Black, Director of Corporate Affairs said:
“Bond restructuring is becoming fashionable. The EU Prospectus Directive allows companies to issue ‘replacement securities’ for existing bonds – however in minimum size of £50,000 if the issuer chooses – leaving out many private investors.
Our general advice to clients has been a recommendation to accept these offers where they can, however, where clients are holding bonds worth less than the minimum £50,000 nominal size – we can only advise they sell in the market in advance of the new issue and while there is still a reasonable market in the soon to be legacy bonds. The proceeds can then be reinvested in a more suitable and accessible product. Holding the legacy stock may well become problematic for clients as it will be even more subordinated debt than they held previously and in an illiquid market.
Previous restructurings have included Yorkshire Water and recently Santander for Abbey and Alliance & Leicester bonds. We expect there will be more such issues to come and we advise investors to read the documentation they receive very carefully and then to seek professional advice.
We are also calling upon the FSA to review any future debt restructuring proposals, involving private investors with bonds for which the original prospectus allowed investments of less than £50,000, and that the FSA should consider Ruling that these existing investors are facilitated in the new replacement issue in the interests of treating customers fairly.
Looking on a broader basis from here, our fear is that capital restructuring becomes a more accepted practice and the “fashion” in the bond markets and that more companies will turn to bond holders in this way. In such future instances private investors may become increasingly compromised by the terms of these offers in relation to minimum nominal sizes and left with a rump of stock in an illiquid market – if action is not taken.”
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For further information please contact Charlotte Black, Director of Corporate Affairs on 0845 213 3331