The Charter for Euro Private Placements, or Euro PP, drawn up by the French working group commissioned by the Banque de France and the Paris Ile-de-France Chamber of Commerce and Industry is now available in French and in English. The Charter was published today by the nine professional organisations supporting it (Association Française des Investisseurs Institutionnels - Af2i, Association Française des Marchés Financiers - AMAFI, Association Française des Trésoriers d’Entreprises - AFTE, Fédération Bancaire Française - FBF, Mouvement des entreprises de France - MEDEF, Association Française de la Gestion financière - AFG, Fédération Française des Sociétés d’Assurances - FFSA, Groupement des entreprises mutuelles d’assurance – GEMA and Paris Europlace).
Since the launch of the Euro PP market in the second semester of 2012, over 70 transactions -representing an aggregate amount exceeding €7 billion- provided financing on the bond market to French unrated mid-sized companies to develop their activities.
This industry guidance document is intended to provide a framework to enhance the standardisation of the three main steps of a private placement (preparation, execution and management until maturity). The Charter should facilitate the access of mid-sized companies to the Euro PP market and strengthen investors' confidence, in order to develop and internationalise the market.
The Charter gathers best practices and recommendations, including on the role of the different actors (issuers, investors and intermediaries), key processes and the determination of the terms of a transaction and the issuer's undertakings throughout the different steps of a Euro PP.
The Charter also includes non-binding templates and forms that can be adapted to the parties' needs:
- a template Information Memorandum , which covers key information provided by the issuer to the investors;
- a form of Non-Disclosure Agreement ("NDA") to monitor the information disclosed by the issuer to investors and ensure its confidentiality;
- a template for the Terms and Conditions, intended to constitute the starting point of the negotiations between the issuer and the investors by defining the main clauses of the Euro PP and by identifying "key points" to consider for each clause; the current template of Terms and Conditions applies to bonds, but a specific appendix for Euro PP in the form of a loan is currently being prepared; and
- an arranger's Due Diligence Questionnaire Template.
Because of the lack of liquidity on the secondary market, investors in a Euro PP generally hold their bonds until maturity (buy and hold). In addition to the need for a more detailed credit analysis, such lack of liquidity calls for the inclusion of specific provisions in the terms and conditions of the bonds, partly inspired by the USPP market in the United States and the Schuldschein market in Germany, under which the investors seek to be pari passu with the bank creditors of the issuer and benefit from the same protections. Such clauses constitute "rendez-vous" clauses enabling a discussion between the issuer and the investors if a significant event occurs during the term of the bonds. They include a negative pledge covering all of the issuers' indebtedness (bond and bank indebtedness, whereas the negative pledge clause is traditionally limited to bond indebtedness on the traditional investment grade bond market), a change of control clause and undertakings to comply with financial covenants or other covenants. In addition, for the benefit of the issuer, the terms and conditions of the bonds may provide that some of the protections will no longer apply (fall-away clause) if an investment grade rating is assigned to the issuer and/or such issuer issues a benchmark bond without such protections. A make-whole redemption clause may also entitle the issuer to redeem the bonds early, subject to the payment of a make-whole amount.
The Charter recommends, notably for the negative pledge and the financial covenants, that such clauses be drafted in light of the ones included in the issuer's bank loan documentation, so that Euro PP investors benefit from the same protections as the bank creditors.
In addition to the Charter, you will find the last version of the Observatoire des Euro PP cotésof CMS Bureau Francis Lefebvre, which summarises the main clauses (scope of the negative pledge, change of control, financial covenants, other covenants, make-whole call, fall-away, etc.) applicable to the listed Euro PP issued on the market since the launch of the Euro PP.