High Yield Bonds Frequently Asked Questions
For issuers wishing to submit a Listing Application for the admission of high yield bonds or similar structured debt securities to TISE.
This page is not exhaustive and issuers are advised to consult the Authority at an early stage should they have any questions in connection with the Listings Rules or contents herein.
A PDF of this document can be found here.
A High Yield Bond (HYB), sometimes also known as a ‘junk bond’, is a debt security issued by a company with a lower credit rating than investment grade corporate bonds. A table comparing those credit ratings for Moody’s, S&P and Fitch (the most recognised credit rating agencies) can be found in Appendix 1. HYB issuers are more often than not newly formed or start-up entities, or existing companies with high leverage or operating in cyclical industries. Given the nature of such issuers, there has historically been a higher risk of default associated with them. As a result of this increased risk, these issuers offer debt instruments (loan notes, bonds etc.) with a higher coupon than investment grade issuers in order to make them attractive to investors. HYBs typically offer a yield of 150 to 300 basis points higher than investment grade securities.
HYBs are widely held by investors globally but most investors are financial institutions or collective investment schemes (mutual funds, exchange traded funds etc.) rather than individuals. HYBs typically contain detailed covenants that govern the ability of the issuer to take certain actions, such as incur debt or pay dividends to equity holders, which are negotiated between the issuer and the underwriters.
Issuers are globally based but more recently, emerging market and Asian issuers have become more active.
HYB issuers typically prepare an Offering Memorandum for the purposes of offering an HYB.
Subject to the Offering Memorandum being in compliance with the requirements of the Listings Rules, including in respect of required disclosures, it can be used as the Listing Document for the purposes of making an application to list on the Official List.
If the Offering Memorandum is not in compliance with the requirements of the Listings Rules, a Wrapper Document or Supplementary Listing Document will need to be prepared containing those missing disclosures or statements required by the Listing Rules. If a Wrapper Document or Supplementary Listing Document is prepared, it must clearly state those documents that should be read in conjunction with one another and form part of the Listing Document thereof.
For new HYB issuers in the drafting stage, it is not expected that a Wrapper Document or Supplementary Listing Document will be required, as it is expected that all disclosures will be contained within the Offering Memorandum, however the use of them is permissible if such disclosures are not present. Where HYB issuers have already issued their securities prior to an application being lodged with the Authority or they are migrating to TISE from another exchange, a Wrapper Document or Supplementary Listing Document will typically be required.
Yes. Where an issuer is migrating to TISE from another stock exchange, the Authority will permit the use of any existing offering documentation for the purpose of making a listing application, subject to it containing all necessary disclosures of the Listing Rules.
Should this not be the case, a Wrapper Document or Supplementary Listing Document may be required to include those missing disclosures or statements required by the Listing Rules.
Subject to the relevant indenture being summarised in all respects under the ‘Description of Notes’ (or similar) section in the Listing Document, it is not always a requirement that a copy of the indenture is provided at the point of submission of the initial application, although it is desirable. It is often the case that the indenture may not be prepared or finalised until after the final Offering Memorandum is distributed.
A copy of the executed indenture will need to be submitted prior to the final application for completeness.
The indenture will not be required to form part of the Listing Document, so long as it is fully summarised in the Offering Memorandum in accordance with the provisions of the relevant disclosure requirements, and an appropriate derogation is applied for, which includes a suitable rationale for not including the indenture as part of the Listing Document.
A copy of the executed indenture will need to be submitted prior to the final application so the Authority can ensure that the provisions of it matches those in the Offering Memorandum.
Material contracts or documents, other than the indenture constituting the security to be listed (e.g. intercreditor agreements, debentures etc.), will not be required to form part of the Listing Document, so long as they are adequately and fully summarised in the Listing Document in accordance with the provisions of the relevant disclosure requirements, and an appropriate derogation is applied for, which includes a suitable rationale for why such material documents or contracts should not form part of the Listing Document.
The Authority may, in its discretion, permit the use of uncertified copies of material agreements (e.g. indentures, intercreditor deeds and security documents etc.) or board minutes (e.g. board resolutions), which may have been signed in counterpart, submitted as part of a Listing Application. The Authority in all cases reserves the right under the Listing Rules to require the submission of certified documents.
The Authority has noted that certain applications refer to certain securities as being ‘guaranteed’ but that these guarantees are then supported by security packages (debentures, first and second lien charges, collateral agreements etc.). It has also been noted that class names in this instance will also refer to the securities as ‘secured’ or ‘first lien secured’ (or similar). Where such guarantees exist and are supported by such security packages as disclosed in the Listing Document, for the purposes of listing, the Authority will deem them as being secured and not guaranteed.
Where the issue is classed as ‘guaranteed’ but such a security package is not present, the Authority will deem the issue as being guaranteed.
The Listing Rules state:
“Unless otherwise agreed with the Exchange, where the securities of an issuer are guaranteed the guarantor must also provide copies of its latest independently audited accounts to the Exchange.”
“If the listed securities may be converted into or exchanged for securities of another company, or are guaranteed by another company, the issuer must ensure that adequate information is at all times available to the Exchange and the holders of the listed securities:
- concerning the business and affairs of the other company; and
- concerning the rights, powers and privileges of the securities into which the listed securities are convertible or for which they are exchangeable.
As a minimum, the information provided to satisfy subsection (a) of this Listing Rule must include the annual report and accounts of the other company, any interim financial accounts, and all other information necessary for a realistic valuation of the listed securities to be made. An issuer may satisfy this requirement by stating on the Exchange’s website where equivalent information may be obtained in respect of the company issuing the equity into which the debt is convertible.”
Where those entities providing guarantees are subsidiaries or group companies of the issuer, the Authority, in its discretion, may permit the provision of the issuer’s group consolidated financial statements in lieu of individual financial statements for each guarantor, provided that the net assets and revenue of the guarantors is not less than 75% of those net assets and revenue of the issuer’s group.
Where the subsidiaries of the issuer or related group companies who provide the guarantee do not satisfy 75% of the net assets and revenue of the group test, lesser percentages will be considered by the Authority upon request subject to a valid reason being provided as to why this threshold cannot be met.
If necessary, formal derogations of the appropriate Listing Rules with an appropriate rationale will be required to be submitted to the Authority for the completeness of the application.
The appropriate disclosure provisions of the Listing Rules require that the following information is included in the Listing Document:
“In respect of every company the whole, or a substantial proportion, of whose capital is held or intended to be held (either directly or indirectly) by the issuer, or whose profits or assets make or will make a contribution to the figures in the accountant's report or the next published accounts, particulars of the name, date and country of incorporation or other establishment, general nature of business, issued capital and the proportion of capital held or intended to be held.”
The Authority, in its discretion, may grant derogation from the above disclosure requirements provided that an appropriate application for derogation, which includes an appropriate rationale for granting such derogation, is submitted and subject to such information being available and obtainable to security holders or potential investors.
The Listing Rules set out that only those investors who are deemed “particularly knowledgeable in investment matters” are qualified and permitted to hold such securities.
For the purposes of this requirement, investors who qualify as institutional buyers under Rule 144A or outside the United States, in compliance with Regulation S of the United States Securities Act 1933, as amended (the Securities Act), or are deemed qualified investors within the meaning of EU Directive 2003/71/EC (and amendments thereto) (the Prospectus Directive), or similar, will be deemed to satisfy the requirements of the Authority in this respect.
It is acceptable to the Authority for an issuer to have ‘Change of Control’ provisions, whereby the issuer upon a Change of Control triggering event (as defined in the issuer’s Listing Document) is required to make an offer for its outstanding securities in issue. This is acceptable to the Authority, subject to full disclosure of the relevant terms and conditions and procedures relating to the offer to repurchase and also provided that, the issuer is in compliance with the Listing Rules governing the information necessary and required to enable investors and the public to make properly informed assessments of the relevant issuer and the securities being offered and for which listing is being sought, as well as those provisions of the Listing Rules relating to equitable treatment of all security holders.
The Authority permits multiple ISINs for a particular class of security (e.g. separate ISINs for those securities held under Rule 144A or Regulation S of the Securities Act), and these are available to view on the background information page of the issuer on the Exchange’s website, stating the relevant class or category of security to which a particular ISIN relates to. Each ISIN will also be stated on the ‘Admission to Official List’ announcement, which is issued via the Exchange’s website when a security class for an issuer is first admitted to the Official List, as well as with respect to each further issue of that security class thereafter.
The Authority is comfortable with the use of temporary ISINs.
Ordinarily it is not the policy of the Authority to permit issuers with a sole director to list.
Exceptions to this policy will be permitted at the discretion of the Authority where controls and/or other governance structures are in place within the issuer’s group which ensure oversight and good corporate governance procedures of any such arrangement.
The Authority will permit reference to publicly available third party websites or information facilities such as the U.S. Securities and Exchange Commission (the SEC) EDGAR system to be stated as a place where further information, notifications or announcements of an issuer can be found. This is subject to a link being provided to holders either in the Listing Document or via a periodic announcement via the Exchange, and subject to an issuer ensuring that any material announcements are notified to the Authority and include any relevant supporting documentation.
The Authority is aware of the use of password protected websites for the provision of certain information (including corporate actions and financial statements) to holders of listed securities.
It is the policy of the Authority to permit the use of such password protected websites, subject to all information being made readily available to any qualified investor likely to deal in those securities.
It is the expectation of the Authority that qualified prospective investors who are interested in acquiring the securities of the issuer will be granted access to all relevant information, upon request to either the issuer or their advisers, without restriction or delay. This will ensure compliance with the provisions of those Listing Rules governing the information necessary and required by investors and the public to enable them to make a properly informed assessment of an issuer and of the decision to make an investment in the securities for which listing is sought, and those relating to the equitable treatment of all security holders.
The Authority may permit group consolidated financial statements to be provided in satisfaction of the requirements of the appropriate Listing Rules, subject to this being disclosed in the Listing Document, and the issuer informing relevant parties where such financial statements can be obtained.
Such financial statements are required to be accessible by holders of the relevant securities and to qualified prospective investors who are interested in acquiring the securities of the issuer that are subject to listing.
The Authority will also require the issuer to advise which standalone financials will be prepared by the issuer and reserves the right to ask that they also be separately provided to the Authority.
Ordinarily it is a requirement of the Exchange that all financial statements or constitutive documents relating to an issuer be submitted to the Exchange in the English language unless accompanied by an official translation. However, the Authority may permit exemptions to this requirement (at its discretion).
Should an issuer prepare financial statements in a language other than English, consolidated group accounts will be accepted in place of the issuer’s stand-alone accounts provided:
- the consolidated group accounts are provided to the Exchange and published on the Exchange’s website following the listing and on an ongoing basis; and
- the Listing Document provides details of the location where the stand-alone accounts of the issuer in the language other than English will be available.
The stand-alone accounts of the issuer in a language other than English will be accepted by the Authority provided that:
- the issuer confirms whether or not the financial statements are prepared on a going concern basis and whether or not there are any qualifications; and
- if the financial statements are qualified, details of the qualification is provided to the Authority together with confirmation as to what steps have been taken by the directors of the issuer to ensure that the issue of qualification is suitably resolved.
If the financial statements of the issuer are not prepared on a going concern basis and/or the financial statements are qualified, the Authority will seek translated copies of relevant extracts from the accounts for review and reserves the right to request any additional information.
Translated copies of the Articles of Association/Incorporation (or similar) of an issuer will not need to be translated provided that:
- the issuer confirms that there is nothing in the document which impacts the listing (e.g. there are no drag-along or tag-along provisions and no transfer restrictions, amongst others); and
- the issuer confirms that there will always be at least two directors on the board of the issuer whilst the debt securities are listed on the Exchange.
Certificates of Incorporation and Certificates of Incorporation of Change of Name etc. will not need to be translated, where the information required is clearly visible.
In such cases, the Authority treats all issuers on a case by case basis and an issuer should contact the Authority at an early stage if they have any concerns.
The Authority reserves the right to request that an issuer provide an official translated copy of the aforementioned documents should it be deemed appropriate and/or necessary.
Should a ‘Stabilisation Manager’ be appointed, this should be clearly disclosed in the Listing Document.
Should any stabilisation take place by an issuer once listed, as per the requirements of the Authority’s general obligations of disclosure requirements in the applicable continuing obligations regime that the issuer is subject to, the Authority requires that an announcement is made via the Exchange notifying the market of any such actions.
As per the applicable Listing Rules, it is a requirement of the Authority that board minutes or written resolutions submitted as part of an application, contain explicit resolutions approving issuance and allotment of the relevant securities, the making of the application for listing in the form set out in Appendix IB and the signing of the Listing Undertaking, as well as the approval and authorisation of the issue of the Listing Document.
The Authority has noted that in some circumstances the board minutes or written resolutions provided do not contain these explicit statements. Where such a situation arises, it is at the discretion of the Authority as to whether to accept such board minutes or written resolutions submitted. The Authority will consider such board minutes or written resolutions where they show intent to issue and list the securities (on the Exchange), and that appropriate approvals and signing authorities have been granted to issue and list the security in question along with all documents required for completing the ‘transaction’ or listing of such securities.
Generally, an issuer must keep the public, the Authority and the holders of its securities informed of any information relating to the issuer that:
- is necessary to avoid the establishment of a false market in its securities; and
- might reasonably be expected to materially affect market activity in, and the price of, its securities and be considered inside information.
Such information includes changes to directors, changes to the terms and conditions of the listed security, changes in control of the issuer, changes to the principal parties of the issuer (e.g. trustee, custodian or the auditor etc.) and that the financial statements are available, amongst other things. This list is not exhaustive and issuers should consult the relevant provisions of the Listing Rules of the Authority for further information.
All announcements should be made via the Exchange’s website, unless otherwise agreed and may be in the form of links to publicly available information elsewhere on the internet. Announcements must be factual and contain sufficient detail to enable investors to make an informed decision, and should not be of undue length and should use plain, non-technical language and be appropriately concise.
Issuers are reminded that the Authority must be provided with a copy of an issuer’s financial statements for their records.