Towards a more effective bondholders identification - the case of France
"Dear Sir, I'll need a Bond 007 ID next month." It could be the scene of an espionage film about her Gracious Majesty; it is actually the launch of an identification of the holders of one or more outstanding bonds by its issuer.
Such an exercise has so far been little known and not widely used by issuers of bonds listed on regulated markets, while it is very common when it comes to shareholders. Indeed, a large company with good credit quality (rated in the investment category, at least BBB- / Baa3 by Standard and Poor's or Moody's respectively) and having nothing special to ask from its creditors, has in general little interest, and even less time and dedicated resources, to closely monitor the movements of its outstanding bonds. Generally, such an issuer is satisfied with the list of definitive allocations established on the issuance day.
On the other hand, there are situations where an issuer may feel the need to know precisely the holders of one, more or all of its bond issuances. These may include debt management operations, restructurings requiring consent requests, or targeted communication exercises, for example during a rating downgrade.
Solutions for the moment limited
In these contexts, the solutions available to businesses are limited - apart from the call to a contact within a bond desk in a bank - and consist mainly of two options.
The first is to use the central depository, Euroclear SA in France, to launch a TPI (in French “Titres au Porteur Identifiable” - identifiable bearer securities) by virtue of a clarification of the legal texts dating from July 2014. This request allows identification for all bonds issued after this date, the search consisting of lists available from Euroclear and other central depositories. Its impact is limited because the bonds in question are relatively recent and unlikely to be targeted by their issuers in the context of debt buyback operations.
The second involves niche providers such as Ipreo, which use a top-down and bottom-up approach to tap into their databases of all institutional investors and obtain their level of ownership on a voluntary basis.
The combination of these methods leads to satisfactory results with identification levels of around 80% to 90%, obtained four to six weeks after the start of operations, and with an low investment compared to the issuance costs, but nonetheless significant for a medium-sized or distressed company.
The transparency issue is significant and is currently the subject of a working group, to which the French Association of Corporate Treasurers – AFTE – is associated, on the initiative of Euroclear. The goal is to summarise the wishes of issuers and to identify the means to be deployed to enable bondholders (and also shareholders) to be identified more easily and efficiently, on a less expensive and potentially instantaneous way, and to present the conclusions of these consultations to the market authorities and to the legislator.
At a time when companies want to emancipate from banks and depositories thanks to transactions capable of self-certification, it may be enough soon to press a button to access such information.
Jérôme Guttieres, Chair of AFTE's Financing Committee