The Bond Buyer’s Post

𝙏𝙝𝙚 𝙄𝙢𝙥𝙖𝙘𝙩 𝙤𝙛 𝘾𝙝𝙖𝙣𝙜𝙚 𝙤𝙛 𝘾𝙤𝙣𝙩𝙧𝙤𝙡 𝘾𝙤𝙫𝙚𝙣𝙖𝙣𝙩𝙨 𝙤𝙣 𝙈&𝘼 𝘼𝙘𝙩𝙞𝙫𝙞𝙩𝙮: 𝙄𝙣𝙨𝙞𝙜𝙝𝙩𝙨 𝙖𝙣𝙙 𝙄𝙢𝙥𝙡𝙞𝙘𝙖𝙩𝙞𝙤𝙣𝙨 In a recent analysis by Toby Nangle for Financial Times, the conversation shifts to the nuanced role of change of control covenants in the landscape of mergers and acquisitions (M&A). Initially devised as a protective mechanism for bondholders against the risk of creditworthiness decline post-acquisition, these covenants are now spotlighted for their potential to significantly impact the feasibility of M&A deals. Change of control covenants, embedded within bond prospectuses, grant bondholders the right to sell their bonds back to issuers at approximately par value if the issuing company is acquired by a less creditworthy entity. While seemingly marginal in a high-market-price environment, the relevance of these covenants escalates in a post-bond crash scenario, where buying back bonds at par can introduce substantial financial burdens on the acquiring companies, potentially deterring appealing M&A transactions. Through a series of assumptions and analyses of the ICE US Investment Grade Index, Nangle illustrates the potential financial headwind these covenants could pose to M&A activities. Despite the idiosyncratic nature of bond prospectuses making broad generalizations challenging, the analysis estimates a significant $675 billion potential increase in costs for bond buybacks, underlining the substantial impact on large firms with extensive debt portfolios. The article further explores real-world applications of these covenants through case studies, including a detailed look at Paramount Global. Despite the intricacies and varied conditions within the change of control clauses, the findings suggest a notable potential for these covenants to add considerable costs to M&A deals, particularly for companies on the verge of investment-grade ratings. In conclusion, while change of control covenants were scarcely present before 2005, their prevalence today introduces a nuanced dynamic to the financing of M&A transactions. With the potential to act as both a protective measure for bondholders and a significant obstacle to deal completion, these covenants underscore the complex interplay between corporate finance and M&A strategy. As the M&A landscape continues to evolve, the implications of such covenants merit close attention from both dealmakers and corporate strategists. https://lnkd.in/gByb_UZp

#Storm7Consulting #UK #FCA #investorprotection #argentowealth On 7 February 2023, the Financial Conduct Authority (FCA) commenced High Court proceedings against an unauthorised investment firm (Argento Wealth Ltd (AWL)) and its sole director (Mr Daniel Willis) to recover money for victims of the firm’s unlawful activity. On 4 April 2024, it was announced the FCA secured £1.6 million for investors from alleged unlawful investment schemes run by AWL. The High Court approved a consent order so the money can be returned to scheme investors. The allegations made by the FCA were that: 1️⃣ AWL unlawfully took approximately £2.8 million as deposits under loan agreements and/or as part of an unauthorised collective investment scheme; 2️⃣ AWL unlawfully arranged investments in 'EMB Fund Limited' (EMB) totalling circa US$9 million (approximately £7,102,470) thereby breaching FCA restrictions on financial promotions; and 3️⃣ Mr Willis was knowingly concerned in such unlawful activities. KEY POINTS ◾ AWL and Mr Willis have not admitted any of the FCA’s allegations. ◾ The settlement agreement was made to prevent remaining assets being used up to meet ongoing legal and living costs. ◾ Further court hearings will be needed to identify how, and to whom, funds should be distributed. ◾ Notwitstanding the size of the financial settlement, investors will still end up having suffered very significant losses. ◾ If the total amount is based SOLELY on CIS deposits (£2.8 million) and EMB investments (£7.1 million), this adds up to £9.9 million. The £1.6. million recovered equates to a dividend distribution of 16.16 pence in the pound. ◾ So, for example, if one of the 13 lenders who lent money to AWL had loaned £1 million, it would only receive back £161,600. ◾ In actuality, the total amount owed will likely be significantly higher so investors will likely receive back an even smaller dividend distribution. AWL was incorporated on 28 February 2017. It was even the 2020 winner of the Global CFO Excellence Awards. Yet AWL was at no point ever FCA authorised. The FCA did not submit a legal claim form until 26 May 2022. So, the real question is how much time passed by (months, years) when the FCA failed to identify alleged misfeasance/unlawful conduct by AWL/Mr Willis? If it had investigated earlier, how many millions more might have been recovered? In effect, to date, AWL/Mr Willis have allegedly managed to spend at least £8.3 million without any personal repercussions. Mr Willis has not even admitted liability. It would be a real stretch to say this marks a "win" for the FCA. FCA REFERENCES FCA (February 2023): https://lnkd.in/eYJwr9rg FCA (April 2024): https://lnkd.in/e-s88K6Q If you find our posts interesting or useful please feel free to follow Storm-7 Consulting on LinkedIn: https://lnkd.in/e7wEZwBn. Thanks.

Affirmative & Negative Covenants in Fixed Income Securities: Affirmative covenants are promises made by the issuer to take certain actions or meet specific requirements. These covenants are intended to provide additional protection and assurance to bondholders. Common affirmative covenants include: a. Payment of Principal and Interest: The issuer pledges to make timely payments of principal and interest to bondholders as per the terms of the bond. b. Maintenance of Collateral: For secured bonds, the issuer agrees to maintain the collateral's value and ensure it remains adequate to cover the bond's obligations. c. Financial Reporting: The issuer commits to providing regular financial statements to bondholders, ensuring transparency about its financial health. d. Maintenance of Insurance: In certain cases, the issuer may be required to maintain insurance coverage for specific assets or projects related to the bond. Negative covenants, on the other hand, restrict the issuer from taking certain actions that could jeopardize the bondholders' interests. These covenants aim to protect bondholders from undue risk and are essential for preserving the bond's credit quality. Common negative covenants include: a. Limitation on Additional Debt: The issuer agrees not to incur additional debt beyond specified limits to maintain its debt capacity. b. Restriction on Asset Sales: The issuer may be prohibited from selling significant assets without bondholders' approval to prevent asset stripping. c. Dividend and Share Repurchase Restrictions: The issuer may be restricted from paying dividends or repurchasing shares to prioritize bondholder interests. d. Limitation on Merger and Acquisition Activities: To safeguard bondholders' interests, the issuer may be limited in engaging in merger and acquisition transactions. #legaltips #legalmatters #law #strategy #fdi #investments #equity #equityinvestments #familyoffice - - - - - Extracted from my latest book «The Global Manual of Foreign Direct Investments», Volume 1, Chapter 2.5, Pag. 129

Following the 'Dear CEO' letter of March this year, the FCA has returned to the subject of PE valuations, reiterating the regulator's concerns in stark terms. DWF's dedicated Financial Services Regulatory and Investment Funds teams breakdown the significance of these signals for the private equity industry, which is now seen as a crucial component of the financial sector. Read more here; https://bit.ly/3KrkMoR #DWF #PrivateEquity #FCA

Does PE pose a systemic risk? With the growth of PE and not least private markets in general this is certainly something to consider. He is a brief piece from the Financial Times on the topic. The FCA challenges BoE's systemic risk warning on private equity, emphasizing need for more evidence. Despite BoE's concerns on leverage, transparency, and valuations, the FCA advocates for cautious regulation Here are a few interesting takeaways - FCA's chief, expresses skepticism towards private equity as a systemic risk - There is a need for more data before implementing stringent regulations - FCA is conducting a review on private asset valuation practices amid concerns about reliability. What do you think and how should LPs and GPs respond. #Balentic #privatemarkets #privateequity #secondaries #secondary #venturecapital #stayilliquid #fundraising #privatedebt #infrastructure #familyoffice #familyoffices

Interest rates, property and casualty insurance pricing, and public broker valuations are all factors in dealmaking. The potential tax increase would mean sellers would have to pay 9.2% more in capital gains taxes. This possible change is one factor in the market's most active deal stretch. #MA #MergersAndAcquisitions #Dealmaking #Interest

The recent signing of the Berne Financial Services Agreement (#MRA) marks a milestone in the financial collaboration between Switzerland and the UK.   How will the MRA reshape the landscape for financial institutions? What specific benefits will this agreement bring to Swiss market participants and their clients?   Explore the impact and specific benefits for the wealth and asset management industry in our latest Spotlight, ­­authored by our experts Martin Peyer, Niklaus Kunz and Lukas Groth. Download Spotlight In English (PDF): https://lnkd.in/d5kxJrZ2 In German (PDF): https://lnkd.in/drUCfCdE #FinancialServices #AssetManagement #WealthManagement 

The emerging motor finance scandal is set to be to the financial services industry in the 2020s, what PPI was in the previous two decades. It’s going to cost big. Close Brothers has already announced it’s closed its dividend in preparation for its exposure to the scandal, with countless others due to follow. What can financial services firms do? The advice is to get their data house in order quickly. Showing willing will appease the regulator, minimise reputational damage and help them ring fence any fall out. Valcon's Phil Rolfe explains here: https://lnkd.in/efDzjB7K #motorfinance #financenews #ppim2024 #ppi #financialservices #financialservicesindustry #data #consulting #technology #implementingthefuture

Fitch Ratings has revised the Outlook on GuarantCo's Insurer Financial Strength (IFS) Rating to Stable from Negative and affirmed the rating at AA-. The affirmation primarily reflects the continued propensity and ability of the United Kingdom, GuarantCo’s main stakeholder, to support its financial strength, as well as the company’s ‘Very Strong’ risk-adjusted capitalisation. The key rating drivers are Ownership Positive for Rating: Fitch’s view of the main stakeholders’ commitment to maintain GuarantCo’s financial strength is backed by formal support agreements such as a GBP 130 million callable capital facility from the Foreign, Commonwealth and Development Office along with scheduled ongoing paid-in equity contributions and Very Strong Capitalisation: GuarantCo’s guarantee portfolio outpaced growth in its capital base in 2023, resulting in a moderate increase in its par/capital ratio to 1.4x at end 2023 (2022: 1.1x). This ratio remains very strong considering GuarantCo’s ‘Very High Risk’ guarantee portfolio. The Private Infrastructure Development Group For more information https://lnkd.in/e-z7rmMQ

Traditionally in the Trade Credit Insurance industry, for every one bankruptcy claim there are four "slow pay" claims processed by carriers. So, if we are forecasting continued increases in corporate bankruptcies cash flow will continue to be strained for most but not publicized. #ariglobal #tradecreditinsurance