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Listed companies & corporate financing Issuance of debt securities

Debt securities

Published on September 18, 2019

The AMF has focused significant attention and energy on helping make the French primary bond market more competitive. It has adapted the regulatory framework and published guides to assist industry professionals. And it has continued to vet marketing materials used when selling complex debt securities to individual investors in France.

Debt security prospectus

Before they can issue or list debt securities, issuers have to prepare a prospectus and submit it for AMF approval. The document can take two forms:

  1. a standalone prospectus prepared for each issue and/or listing application,
  2. a base prospectus prepared annually and supplemented with a document setting out the final terms of issuance, which must be filed with the AMF whenever a new series of securities is issued. In particular, the base prospectus is used for annual Euro Medium Term Note (EMTN) programmes; and financial institutions use it when issuing certificates and warrants or covered bonds.

For further information, issuers can refer to the annexes of European Regulation No. 809/2004 of 29 April:

  • bonds with a denomination per unit of less than €100,000: annexes IV and V
  • bonds with a denomination per unit of €100,000 or more: annexes IX and XIII. 

Prospectus contents

Using the term “obligation” (bond)
In prospectuses for issuing or listing of complex debt securities, the AMF accepts the use of the term “obligation” (bond) in the French summary.
In the French marketing materials used by issuers and/or distributors to market complex debt securities without a principal guarantee at maturity, the term “obligation“ may not be used, even with a stipulation that the principal is not guaranteed (e.g. “non garantie en capital à l’échéance”). The term “titre de créance” (debt security) or “instrument financier” (financial instrument) should be used instead. In this way, investors can be in no doubt about the risk of principal loss.
However, if a commercial document such as a brochure contains a French term sheet or a section setting out the main financial characteristics, the term “obligation” may be used in the heading that describes the legal form of the instrument, provided the issuer clearly  clarifies the instrument's precise legal status.

The base prospectus and the standalone prospectus both contain:

  • a section containing information about the issuer, in particular its business, risks, financial situation and results
  • a section on the securities.

The information must be clear, all-inclusive and understandable.

If the issuer has already prepared a registration document, this may be incorporated by reference into the base or standalone prospectus to satisfy the AMF's requirement.

A summary is required only if the application covers the admission to trading on a regulated market of debt securities with a denomination of less than €50,000. Using non-technical language, the summary must briefly convey the essential characteristics and risks associated with the issuer, the guarantor, if any, and the securities.

Deadline for obtaining authorisation

The deadline set by the Prospectus Directive and transposed into the AMF General Regulation is 10 business days after a full document has been filed.

The deadline is shortened to five business days for issuers that have already provided comprehensive information by previously drafting a registration document and registering or filing it with the AMF.

The supplement

Every significant new factor, material mistake or inaccuracy relating to the information included in the prospectus which is capable of affecting the assessment of the securities and which arises or is noted between the time when the prospectus is approved and the final closing of the offer to the public or, as the case may be, the time when trading on a regulated market begins, shall be mentioned in a supplement to the prospectus. In practice, issuers prepare supplements when they publish their annual or interim earnings. Furthermore, if the issuer publishes a registration document, the AMF accepts that its interim financial statements, published as a half-yearly financial report, can be incorporated directly by reference into the prospectus without automatically updating the registration document. 

Passport procedure for marketing within the European Union

A debt security prospectus authorised by the AMF can be passported into another Member State, just like any other prospectus. In practice, the AMF will issue an approval certificate promptly and free of charge if the issuer requested one when filing its draft prospectus. The AMF sends the certificate to regulators based in the other Member States of the European Union or states party to the European Economic Area agreement where the issuer wants to use its prospectus. Depending on the country, it may be necessary to translate the summaries and, in some cases, the documents incorporated by reference demanded by certain regulators.

Supervising the marketing of debt securities

Marketing non-complex debt securities

The AMF published a guide to the best practices applicable when marketing bonds to non-professional clients. The guide addresses the needs of professionals that offer fixed-income securities to a customer base composed of non-professionals, generally retail investors. It gives details of the minimum information that, according to the AMF, should be given in all promotional materials and whenever investment services providers (ISPs) are interacting with potential investors who are not professionals.

The guide also sets out the broad framework for and the principles governing the information sent by IPSs to their clients. The AMF emphasises that it has the authority to order changes to the presentation and content of advertising materials to ensure that the information they contain is accurate, complete and not misleading.

The information must be set out in an understandable way and must not stress the potential advantages of a financial instrument without also presenting correctly and clearly any corresponding risks. It must not misrepresent, minimise or conceal any important data, statements or warnings.

Marketing complex debt securities

The AMF analyses marketing materials whenever debt securities, especially complex instruments, are offered for sale to the public in France. It refers to its best-practice guide.

Specific arrangements for bonds issued through a public offering

To protect investors, the rules on ordinary admissions are supplemented with additional rules when bonds are being marketed to retail investors:

  • In terms of the content of the prospectus, the AMF and the issuer or its advisors note the final terms of the issue on the day approval is granted;
  • All advertisements must be sent to the AMF before being distributed. The AMF checks that each advertisement is consistent with the financial terms of the issue and complies with current rules. A professional guide to best practice when marketing bonds to retail investors, available on the AMF website, specifies the AMF's minimum disclosure recommendations for this type of documentation;
  • In terms of language rules for the prospectus, French is required only if the denomination per unit of the securities is less than €1,000. If the denomination exceeds that value, English may be used and only the summary has to be in French. The language rules applicable to bonds issued through a public offering have thus been harmonised, regardless of the issue's face value.
  • The final terms may also be drafted in English, but investors in France should be provided with a summary of the final conditions in French.

Acquisition of debt securities that do not give access to capital

Orderly acquisition procedure

Set in motion on the initiative of the issuer, its agent or a third party, the orderly acquisition procedure consists in creating a centralised mechanism allowing all holders of the same bond to sell or exchange some of all of the securities they hold, up to an amount specified in the offer.

The procedure enhances the equal treatment of bondholders by offering all of them a buyback or exchange of their debt securities on identical terms for the same issue. Buybacks are organised in proportion to the investors' holdings.

If the securities were issued through a public offering, the orderly acquisition procedure is announced in a press release. The contents and the distribution arrangements for the release are set forth in AMF instruction DOC-2010-02 of 25 May 2010.

Enhancing market transparency

Article 238-2 of the AMF General Regulation sets the procedure for informing the market of buybacks made by an issuer if it acquires more than 10% of the securities representing a single bond issue in one or more transactions on or off-market.

To ensure market integrity and transparency, the issuer informs the market through a news release disseminated within four trading days, in accordance with Article 221-4 of the AMF General Regulation. The same disclosure is made for a buyback, in one or more operations, involving each additional 10% tranche of the same issue (minus the securities sold).

The 10% threshold is calculated on the number of securities issued, including any subsequent issues granting identical rights to holders, In this instance, Article 238-2 of the AMF General Regulation deals with fungibility.

Use of several credit rating agencies

The Credit Rating Agencies Regulation was last revised in May 2013 and introduced provisions applicable to issuers with the aim of encouraging greater competition between Credit Rating Agencies (CRAs).

Encouraging the use of smaller CRAs

Where an issuer or a related third party (1) intends to appoint at least two CRAs for the credit rating of the same issuance or entity offered to the public within the EU, or admitted to trading on a trading venue situated within the EU, the issuer or the related third party shall consider appointing at least one credit rating agency whose market share represents no more than 10 % of the total CRAs market share.

Such total market share shall be measured with reference to annual turnover generated by credit rating activities and ancillary services, at group level.

The use of such smaller player occurs to the extent that, in the opinion of the issuer or the related third party, there is a rating agency available and capable of rating the specific issuance or issuing entity.

ESMA’s supporting documentation to assist issuers in their evaluation

In order to assist issuers or related third parties with their identification of CRAs with no more than 10% of total market share, Article 8d of the CRA Regulation requires ESMA to publish an updated list of registered CRAs.  

With a view to facilitating the evaluation of the issuer or the related third party, ESMA also publishes every year the market shares of each registered CRA and the types of credit ratings they issue.

How and when to 'document'

Where the issuer or related third party does not appoint at least one smaller CRA, then the issuer or related third party is required to document this decision, and may fulfil this requirement to document by using the template provided in ESMA’s Supervisory briefing (the “Standard Form”),a  procedure broadly inspired by the concept of ‘comply or explain’.

ESMA’s Supervisory briefing clarifies that the requirement to document may arise in cases of existing and longstanding contractual relationships between issuers and at least two CRAs for the rating of the same instrument or issuance when none of the contracted CRAs is a CRA with less than 10% of market share. Thus when these contracts contain an “automatic renewal clause”, and clients have the right to give notice to one of the existing CRAs without any contractual sanction or penalties, then the issuer or related third party is required to document this decision, if it does not appoint at least one smaller CRA.

Issuers and related third parties may receive a request from the AMF to provide the document required under Article 8d.

The AMF may also be provided with this documentation on a voluntary basis.

Double credit rating of securitisation instruments

Where an issuer or a related third party intends to request a credit rating for a structured finance instrument (SFI) that is issued, or proposed to be issued to the public within the EU or admitted to trading on a trading venue situated within the EU, it shall appoint at least two CRAs to provide credit ratings independently of each other.

The issuer or a related third party shall ensure that the appointed credit rating agencies comply with a certain number of conditions listed in article 8c of Regulation (EU) No 462/2013 of 21 May 2013.

Where a CRA enters into a contractual agreement for the issuance of credit ratings on re-securitisations, the CRA regulation provides that it shall not issue credit ratings on new re-securitisations with underlying assets from the same originator for a period exceeding four years.

 

(1) ‘related third party’ means the originator, arranger, sponsor, servicer or any other party that interacts with a credit rating agency on behalf of a rated entity, including any person directly or indirectly linked by control to that rated entity

Regulation (EU) No 462/2013 of the European Parliament and of the Council of 21 May 2013 amending Regulation (EC) No 1060/2009 on credit rating agencies

ESMA Supervisory briefing: a common approach to the CRA regulation’s provisions for encouraging the use of smaller CRAs

ESMA website – CRA supervision dedicated section

List of registered and authorised CRAs

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Legal information
Head of publications: The Executive Director of AMF Communication Directorate.
Contact: Communication Directorate – Autorité des marches financiers 17 place de la Bourse – 75082 Paris cedex 02