23 May 2013
CORPORATE BONDS
- AN OVERVIEW
1. Introduction
Traditionally, Danish (non-financial) companies have only to a very limited extent been financed by
issuing bonds. However, the financial crisis and the consequential pressure many banks have been under to reduce credits have had the effect that it has become natural to consider whether companies’
issuance of bonds might be a useful addition to sources of finance, also in Denmark.
Against this background, the Danish Government issued a mandate on 13 December 2011 appointing a
committee to look at corporate bonds as a source of finance for small and medium-sized companies.
While the committee work was under way, the Danish FSA issued a statement on 4 July 2012 in which
it removed a regulatory barrier against (non-financial) companies’ option to issue corporate bonds1.
In November 2012, the Committee presented a report (the “Committee Report”) 2. The Committee Report addressed to separate issues: (1) the individual company’s option to issue bonds, and (2) the option to issue bonds based on a pool of loans to small and medium-sized companies, so-called securitization. When the Report was made public, the latter issue, including the legal issues attached thereto,
received the most attention.
Shortly after the publication of the Committee Report, Danish Crown issued bonds for DKK 750 million
of the type which the Committee had addressed in relation to the individual companies’ option as issuers. The bond was subsequently admitted to trading on the alternative marketplace First North Bond
Market which NASDAQ OMX opened for bonds in Denmark and Sweden on 7 December 2012. Recently,
on 8 March 2013, AMBU issued bonds of DKK 700.5 million to be admitted to trading on NASDAQ OMX
Copenhagen A/S within the end of the year.
The motivation of this article is to provide an overview of the possibilities and the process in connection with individual companies’ issuance of bonds subject to Danish law and admitted to trading on
Danish marketplaces.
2. The Danish Background
Prior to the FSA’s statement on 4 July 2012, a number of the largest Danish companies such as Carlsberg, AP Møller Mærsk, DONG Energy, TDC, and ISS had been issuing bonds during several years.
Characteristic of those bonds is that they are of such a volume that they are able to attract international investors and the costs of completing international issuances are justifiable. Investment banks
have therefore advised that this type of issues as a general rule require that a minimum of approx.
EUR 300-500 million be raised. Some of them (including DONG Energy and TDC) have been completed
by using EMTN (Euro Medium Term Note) programmes where the issuer registers a base prospectus.
The base prospectus may be used as basis for more issuances during 12 months pursuant to the bond
terms, which do not need governmental approval provided that the terms can be contained in the
standard terms described in the base prospectus. Seeing as the FSA’s construction of the rules prior to
the statement of 4 July 2012 in practice meant that in most cases, the issuer was required to be a licensed financial institution or savings company if the bonds constituted more than approx. 25% of the
balance, the option to issue bonds was in reality reserved for the largest companies.
Furthermore, certain companies have made use of the option to issue bonds for admittance to trading
on the Norwegian marketplace Oslo Børs. This has been a natural option for shipping and offshore
companies in particular, and it has been used among the shipping companies J. Lauritzen (2010 and
2012) and DFDS (2012 and 2013). Moreover, some companies have made issuances directed at American institutional investors pursuant to Rule 144A3 (Welltec, 2012)4.
Figure 1 shows an extract of the types of issuances which have been mentioned.
Figure 1 – Selected Danish companies’ issuances of corporate bonds
Amount
Term
Listing
Interest
Rating
TDC 2012
(EMTN)
EUR 500M
2022
Luxembourg
3.75%
Fitch:BBB
S&P:BBB
Moody’s:Baa2
Welltec 2012
USD 325M
2019
Luxembourg
8%
S&P:BBMoody’s:B1
DONG 2012
(EMTN)
EUR 750M
2022
London
2.625%
S&P:A+
Moody’s:Baa1
DFDS 2012
NOK 500M
2016
Oslo
3M NIBOR +
3.50%
No
Vestas 2010
EUR 600M
2015
Luxembourg
4.625%
No
Source: Various prospectuses and information from the exchanges
None of the issuances are denominated in Danish Kroner, none are subject to Danish law with regard
to bond terms, and none are admitted to trading on Danish marketplaces 5.
The bonds issued in November 2012 and March 2013, respectively, by Danish Crown and AMBA differ
from Danish companies’ issuances thus far in that they have been denominated in Danish Kroner, that
the bond terms are subject to Danish law, and that they have been admitted to trading on a Danish
marketplace.
The bond terms should include provisions on how the bond holders are to remain in the event that
it becomes necessary to enforce and renegotiate the bond terms. In this case, it might be practical
to agree on terms stipulating that the bond holders may make decisions effective for everyone at
the bond holder meetings, which are either held physically or by written procedure.
In Sweden, numerous issuances of bonds denominated in Swedish Kroner, with bond terms subject to
Swedish law and admitted to trading on NASDAQ OMX Stockholm 6 have been carried out in recent
years. Issuers include major listed Swedish industrial companies such as Sandvik, but also mediumsized listed companies such as Swedish Orphan Biovitrum (SEK 800 million, 2012 and 2013) and
smaller privately owned companies such as Kährs (SEK 750 million, 2012).
The cornerstone of the Swedish legal infrastructure, the Nordic tradition and EU regulation is similar to
the Danish. Notwithstanding the fact that the Swedish infrastructure differs from the Danish one due to
a larger share of major companies, the Swedish development seems to indicate that an increasing
number of Danish companies may follow in the footsteps of Danish Crown and AMBU and carry out issuances subject to Danish rules and admitted to trading on Danish marketplaces.
3. The legal Framework
The company’s board of directors makes the decision to issue bonds. In this connection, the issuer
must in particular consider regulatory questions, questions in relation to the bond terms, including
whether to use an agent, and questions regarding the possibility of a stock market listing of the bonds.
3.1 Regulatory questions
Prior to 4 July 2012, the Danish FSA’s construction of the Danish Financial Business Act 7, Section 7(1)
and (3), paragraph 3, was that issuers of corporate bonds were required to be licensed as a bank provided that the following conditions were fulfilled: (1) the company must receive deposits or other funds
which were to be paid back, (2) the funds must be received from the general public, (3) the company
must provide loans at its own expense, and (4) the reception of other funds or the lending business
must constitute a material part of the company’s operation.
Figure 2 – The legal framework
Provided that conditions (1), (2) and (4) were met, but the company did not provide loans at its own
expense (condition (3)), the issuer would need to have a license as a bank, cf. the Danish Financial
Business Act, Section 334.
Figure 3 – The Danish FSA’s statement of 4 July 2012
Provided that conditions (1), (2) and (4) were met, but the company did not provide loans at its own
expense (condition (3)), the issuer would need to have a license as a bank, cf. the Danish Financial
Business Act, Section 334.
Based on the explanatory notes to the Act, any revenue from bonds is considered to be “other funds
which are to be paid back”, see condition (1). The limit for what constituted a “material part”, see condition (4), was a specific assessment, but was generally drawn at approx. 25% of the balance. This
way, any potential issuances implied a risk for the issuer of having to deal with less than desirable and
complicated discussions with the Danish FSA, the result of which was uncertain.
4 July 2012, the Danish FSA published a new advisory statement regarding the construction of Section
7(1) and (3), paragraph 3 and Section 334 of the Danish Financial Business Act. The statement which
had been presented to the Financial Business Council (now the Financial Council) contained a relaxation of the requirements for issuers of corporate bonds in that in future, there would be fewer cases in
which issuers would be required to have a license in accordance with the Danish Financial Business Act.
Investors will more often require that the bonds be admitted to trading on a marketplace. This is
primarily due to investment mandates and placement rules, while liquidity and pricing are not as
important as when dealing with shares.
The reason for this as expressed in the statement was that the FSA wished to adjust Danish practice in
other EU countries, thus improving the companies’ access to using corporate bonds as a source of finance.
The FSA’s main legal argument for the changed construction, which was based on Article 5(2) in the
Banking Directive8, was that the considerations which until then had been sought safeguarded through
the Danish Financial Business Act – namely the considerations to safeguard contributors/investors –
were safeguarded by the requirement to disclose to the investors contained in the prospectus rules, as
well as by the MiFID rules9 on investor protection. Against this background, the FSA found that the issuance of corporate bonds that fall within the duty to publish and issue a prospectus pursuant to the
Danish Securities Trading Act10 are not in principle considered to be covered by the regulation in the
Danish Financial Business Act’s Sections 7 and 334. The statement took the argumentation as far as to
say that the exemption from the Danish Financial Business Act’s requirement for a license did not only
apply in circumstances where an issuance implies a prospectus duty, but also in circumstances where
the prospectus rules exclude the prospectus duty.
According to the Danish Securities Trading Act, Section 23(1) and Section 24(1), issuers of securities
may not offer securities to the public or have them admitted to trading on a regulated marked before
the prospectus has been published and approved.
The Executive Order no. 643 of 19 June 2012 on prospectuses for securities that are admitted to trading on a regulated marked and securities above EUR 5,000,000 offered to the public (the “Prospectus
Executive Order”) does, however, contain a number of exemptions from the prospectus duty 11. Most
notably, the exemptions include offers (1) to qualified investors, (2) to fewer than 150 natural or legal
persons per country, (3) where each investor must contribute with no less than EUR 100,000, or (4)
where the nominal value per security is no less than EUR 100,000.
According to the FSA’s statement on 4 July 2012, in the situations covered by the exemptions, the investors will generally not be viewed as professional investors, which justifies the exemption from the
prospectus duty, and for the same reason the Danish FSA finds that “reception of funds from the general public”, cf. the Danish Financial Business Act, Section 7(3) does not apply in this case, unless the
issuer is aware that the acquisition is carried through for the purpose of a resale to non-professional
investors.
This implies that issuers may structure an issuance of corporate bonds in a manner where neither a
license as a financial institution nor prospectus duty are required in connection with the actual offer,
for instance by having a denomination of no less than EUR 100,000.
In its statement12, however, the Danish FSA states that “if the issuer’s intention (now or later) is to
admit the corporate bonds to trading on a regulated or non-regulated market (independently or in accordance with the immediate acquirer), the FSA sees this as a strong piece of circumstantial evidence
of an offer being made to the public. This applies to listings on NASDAQ OMX Copenhagen A/S or an
OTF or a multilateral trading facility such as Luxembourg Euro MTF or…”
Unfortunately, the reach of this modification is unclear, whether the subsequent admittance to trading
takes place on a regulated or a non-regulated market. If the bonds are admitted to trading on a regulated market, a prospectus would need to be drafted in accordance with the Prospectus Executive Order. In the Danish FSA’s view, see the above, such a prospectus drafted in connection with the actual
issuance implied, in principle, that the considerations pursuant to the Danish Financial Business Act
had been observed to the effect that the question regarding the bank license basically became irrelevant. It is therefore likely that the question regarding the bank license remained irrelevant, the listing
notwithstanding, in particular where each investor was required to contribute approx. EUR 100,000 or
where the nominal value is no less than EUR 100,000. The same ought to apply where a prospectus is
drafted pursuant to the Prospectus Executive Order in connection with a listing on a non-regulated
market. Even when an actual prospectus is not drafted in connection with an admittance to trading, for
instance if a mere company description is necessary as is the case with admittance to trading on First
North Bond Market, see below regarding admittance to trading, it would be a reasonable assumption
that the actual admittance to trading makes no difference as regards the question of a bank license in
cases where the investments are of a level which presumptively are reserved for professional investors.
However, the consequence of the different reservations in the Danish FSA’s statement is that an issuer
should present the intended structure to the Danish FSA very early on in order to ensure that the Danish FSA agrees that the structure contains no questions regarding a bank license. Hopefully, the reservation will prove to be a reflection of the Danish FSA’s intention to merely keep a firm hold on the development.
Figure 4 – Typical differences between bank loans and corporate bonds
Characteristic
Bank loan
Corporate bonds
1-3 years
Generally 1-7 years
Interest
Variable interest
Usually fixed annual interest
Security
Yes
Typically no
Covenants
Strong
Weaker, depending on the issuer
Position in the capital structure
Senior
Above share capital
No
Yes (depending on listing)
Loan agreement
Bond terms + possibly prospectus/company description
Difficult
Yes
Term
Public distribution of information
Documentation
Negotiable
3.2 The relation between the issuer and the investor
The relation between the issuer and the investor is regulated in the current bond terms. Generally,
there is a freedom of contract when determining the bond terms, but if the bonds are intended for admittance to trading, they must be freely negotiable. There is no market standard for corporate bonds
on the Danish market as of yet, but in time, a set of standards will be produced corresponding to what
we have seen on international markets.
The initial marketing in connection with a bond issuance will usually be based on a “Term Sheet” which
will be completed with the leading investors during the process. The bond terms will generally be briefer than the loan agreements which would need to be negotiated for loans of the equivalent amount.
The duration will typically be longer, and except for in cases of default or change of control with the
issuer, the creditor will not be able to terminate the loan before its expiry. Further, the bond terms will
contain fewer limitations on the issuer’s operation and key figures requirements (“covenants”) than
financing through banks13. These matters are considered to be material advantages to issuing bonds.
However, the specific content of the terms is coordinated in negotiations between the issuer and the
leading investors and depends on a number of factors. This way, nothing prevents the bond terms
from containing strict covenants or the issuer from providing security for the debt in accordance with
the bonds. Any subsequent acquirer of any bond would be bound by the current bond terms. Figure 4
shows an overview of the most common advantages and disadvantages by financing through banks
and bond issuances, respectively.
The bond terms should contain provisions on how the bond holders are to remain in the event that it
becomes necessary to maintain and renegotiate the bond terms. In this event, it might be useful to
agree on conditions that will enable the bond holders to make decisions binding on all at bond holder
meetings, which may be held physically or as a written procedure. Notice to convene, conduct of meetings, and decision rules may be designed based on the rules of the Danish Companies Act, meaning
that a quorum is required and that decisions in principle are made with a simple majority, while any
decisions with more material effect on the bond holders require a qualified majority. Further, any
changes to the bond terms require the approval of the issuer.
3.3 Agent
With a view to coordinate the attendance to the creditor’s interest, the bond terms may also contain a
condition that an agent or a trustee is authorized to make certain more limited decisions on behalf of
the current bond holders. These decisions may include more mechanical tasks such as payments and
calculation of interests, but may also include notice to convene bond holder meetings, monitoring of
the borrower’s compliance with his/her duties, and enforcement of default. Here, the mechanism will
often be that in the event of default, the agent must either terminate the debt or convene a bond holder meeting. Moreover, the agent may be authorized to agree on less material changes to the bond
terms with the issuer on behalf of the bond holders. This is also useful in connection with an actual
restructuring of the debt, provided that the negotiations can be handled by an agent who can present a
negotiated outcome to the bond holders who may then make a decision on the potential approval with
a majority which has been determined prior to this. The riskier the debt, the more reason there is to
Investors will more often require that the bonds be admitted to trading on a marketplace. The most
immediate marketplaces in Denmark are NASDAQ OMX Copenhagen A/S or First North Bond Market.
consider a structure which includes an agent. On the other hand, the risks attached to agent structures, see below, imply that it may be more efficient to opt out of using an agent in cases where the
issuance has a high level of credit security and the need for an agent is likely to be very limited. On
the Swedish market, agents are therefore generally used in connection with high yield issuances (not
investment grade).
The expedient outcome of using an agent scheme depends on any subsequent acquirers also being
bound by the bond terms’ provisions governing the agent’s activities, including the agent’s authorization. The starting point must be that also on this, the provisions of the bond terms bind any subsequent acquirer of bonds, cf. the principle of Section 27 in the Danish Debt Instruments Act 14.
Further, an agent can only fill the intended role provided that there is a so-called “no action clause” by
which the individual bond holders are prevented from individually commenting and enforcing the rights
which the agent has been authorized to manage on behalf of the bond holders. Ultimately, the agent
must be able to take procedural steps on behalf of the bond holders while, conversely, the bond holders must be cut off from taking such steps15. The Committee Report mentions that also on this matter
is Danish law unclear. A few older Danish rulings on debentures16 supports that the agent may be
granted such exclusive authority17, just as it is supported to some extent from an authority legislation
point of view18. In Norwegian law, this question was unclear up until a ruling from the Norwegian Supreme Court in 201019. The Norwegian agent, Norsk Tillitsmann, whose competence was based solely
on an agreement, had a right of action for the bond holders’ claims as implied in the bond terms. The
Norwegian Supreme Court’s detailed reasoning did highlight the advantages that this right implied for
all the parties involved, including for those bond holders who individually are cut off from taking procedural steps, as well as for the issuer. Thus, the ruling in relation to the agent had legal force in relation
to the bond holders. We must assume that Danish courts will look to the Norwegian ruling until such a
time when the question is regulated explicitly in Danish law as recommended in the Committee Report20. In Sweden, where the agent’s competence to take procedural steps on behalf of the bond holders has also not yet been regulated explicitly or determined in practice, the bond terms generally take
the risk into account. Initially, the competence is attached to the agent and in accordance with the
bond terms, each bond holder is obligated to issue any further powers of attorney requested by the
agent, for instance in connection with procedural steps21. In the event that the courts reject the
agent’s right to represent the bond holders, or the agent fails to fulfill its obligation to take procedural
steps, the bond holders may jointly take such steps provided that such decision is made at a bond
holder meeting. Similar provisions may be used in bonds subject to Danish law.
In the rarer cases where the bonds are pledged, it may also be useful to have an agent. Although this
question too remains unsettled in legal usage22, we must assume that an agent would be able to act
The process relating to issuing and listing of bonds on Danish markets is fairly simple. First North
Bond Market does not require an actual prospectus or that accounts be presented in accordance
with IFRS. NASDAQ OMX Copenhagen A/S might become more attractive if the process relating to
the FSA’s approval of prospectuses were simplified.
as a “security agent” and hold a pledge on behalf of the bond owners and undertake the act of perfection23 in the agent’s own name. If the pledge is to be realized with the help of the enforcement court,
the agent may presumably in accordance with the bond terms take such steps on behalf of the bond
owners, see above. In this case, the pledged will be secured in relation to the issuer’s (the pledger)
other creditors, and the bond owners will be secured in relation to the agent’s creditors provided that
the pledge is kept separate from the agent’s assets.
Figure 5 – Process for issuance and admittance to trading of corporate bonds
3.4 Admittance to trading
Investors will usually require that the bonds be admitted to trading on a marketplace. This is primarily
due to investment mandates and placement rules24, while liquidity and pricing do not carry the same
weight in relation to shares. The most obvious marketplaces to use in Denmark are NASDAQ OMX Copenhagen A/S or the new marketplace established by NASDAQ OMX on 7 December 2012 First North
Bond Market25, respectively. NASDAQ OMX Copenhagen A/S is a so-called regulated market, and the
requirements for documentation in connection with admittance to trading are stricter than First North
Bond Market. It is worth noting, however, that neither on NASDAQ OMX Copenhagen A/S nor on First
North Bond Market is it a requirement to achieve a certain spread of the offering among more investors.
This means that in order to be admitted to trading on NASDAQ OMX Copenhagen A/S, it is a requirement that a prospectus be drafted pursuant to the Prospectus Executive Order26 and that it be approved by the FSA, cf. the Debt Instruments Act, Section 23(1) and (2). The FSA’s practice as regards
the approval of prospectuses implies that in principle, the FSA must review four prospectus drafts prior
to the final approval. The FSA takes up to 10 work days to do the first review of the prospectus and up
to five work days to do each of the following reviews. The 10 days’ deadline may, however, be prolonged to 20 days if the prospectus concerns securities issued by an issuer that has no securities admitted to trading and that has not earlier made any public securities offerings 27. Issuers and invest-
ment banks consider this somewhat prolonged process to be a considerable disadvantage to admitting
bonds to trading on NASDAQ OMX Copenhagen A/S, and finding a way to make this process more flexible28 should be a priority in the ongoing development of the Danish bond market.
First North Bond Market is not a regulated market, but a so-called alternative marketplace. In connection with an application for listing and admittance to trading, the issuer may choose to submit a company description instead of an approved prospectus, cf. First North Bond Market Rule Book, item 2.2.2.
The requirements for a company description29 are substantially lower than the requirements for a prospectus, and any well-organized issuer is capable of drafting a company description in a short amount
of time, using few resources and with limited assistance. If the sufficient information is already available to the market, not even a company description is necessary.
Among other things, a company description must contain a description of (i) the company’s business
model, organization, competitive situation, risks, and the motivation for the decision to issue, (ii) the
most important contracts, patents etc., (iii) ownership structure, (iv) the bonds’ terms and conditions,
and (v) the annual reports for the past two years, cf. First North Rule Book, item 3.2. As with prospectuses, the annual reports may be incorporated by way of reference30.
The requirements to the company description do not include statements from any financial agent/
organizer or the auditor, while the NASDAQ OMX Copenhagen A/S rules for issuers of bonds require
that bond prospectuses include a statement from any financial agent/organizer and in special cases,
from the auditor31.
Issuers on First North Bond Market may continue to present the financial accounts in accordance with
national accounting standards which may be a material advantage for issuers that do not present the
financial accounts pursuant to the international IFRS standards. Contrary to this, issuers on NASDAQ
OMX Copenhagen A/S must adapt historical financial accounts to IFRS and present the financial accounts in accordance with IFRS going forward.
Unlike the prospectus, the company description does not need to be approved by the FSA, only by First
North Bond Market. According to the First North Bond Market Rulebook, the application to be admitted
to trading, including any company description, must be received by First North no later than eight days
before the first day of trading, but naturally, the brief process depends on the submitted company description’s fulfillment of the requirements.
In connection with being admitted to trading, any issuer on First North Bond Market must be assigned
a so-called Certified Adviser, cf. the First North Bond Market Rulebook 2.2.3. The purpose of this item
is that the issuers comply with the current listing rules and receive advice regarding the organization of
The development of a Danish market also depends on major investors deciding to make it a priority
to participate in the development despite the fact that initially, it will imply more work than merely
investing in similar securities on foreign markets. agree on the commercial terms, including the price
(interest) in particular.
the company in order to be able to comply with the duty of disclosure as a result of having been admitted to trading.
Whether on NASDAQ OMX Copenhagen A/S or on First North Bond Market, the bonds’ admittance to
trading implies that the issuer must make market announcements regarding results and matters which
materially affect the price of the bonds on an ongoing basis. Issuers whose shares are already listed
will in principle not experience any additional burden. As regards the issuer, this means that the price
of the bonds will namely depend on the credit risk, and the notices which will already be given will also
include this.
4. Process
The process in connection with the issuance of bonds which are admitted to trading on Danish marketplaces is fairly simple, especially when the bonds are admitted to trading on NASDAQ OMX’s new marketplace First North Bond Market.
First of all, an issuer should discuss with its financial advisor whether it would be expedient to obtain a
rating from a credit rating agency prior to the issuance. This procedure is rather extensive, and a high
number of issuances are carried through without any rating. The question depends namely on the volume of the issuance and which investors the issuance is directed at.
Once the issuer and any relevant advisors have determined a structure for the issuance, the issuer
should present the structure to the FSA in order to ensure that the FSA agrees that a bank license is
not required.
After this, financial and legal due diligence reviews should be launched for the purpose of ensuring that
the investors receive all necessary information about the issuer. Swedish practice has developed in a
manner where only limited due diligence is carried through for issuers who already have issued securities admitted to trading on the Swedish stock exchanges, while full due diligence is completed where
new issuers are concerned. The extent of the due diligence for new issuers especially depends on how
comfortable the contributory bank is with the risks attached to the issuing company.
Parallel with the due diligence reviews, a draft for bond terms, a term sheet, and potentially an agency
agreement may be prepared, and the issuing bank and the issuer may prepare an investor presentation for marketing the bonds. Further, investor meetings may be planned. Once the due diligence has
been completed, the investor presentation may be finalized after which marketing is commenced. Parallel with marketing meetings, negotiations concerning the term sheet and bond terms are concluded
with the leading investors, and legal opinions and any comfort letters from lawyers and the auditor,
respectively, are presented, after which a form of book building is carried through, and the bonds are
issued against payment.
If the bonds are covered by one of the exemptions to the prospectus duty in the Prospectus Executive
Order, see above, the prospectus or the company description do not need to be completed at the time
of the issuance, and the bond terms can include a provision that listing or a listing application must be
made within e.g. six months after the issuance. This cadence is often used in Norway and Sweden and
is especially appropriate in cases where swift financing is needed, while it may be difficult to obtain
approval of the documents for the listing at the same pace, including in relation to procedures of the
market place and the FSA. The issuer and the issuing bank are better protected against any potential
liability if the investors’ subscription material is more satisfactory, and this speaks for aiming to have
the material, or at least an advanced draft, ready at the time of the issuance.
5. Conclusion
With its statement of 4 July 2012, the FSA has removed a significant impediment for the establishment
of a Danish market for corporate bonds. The establishment of such a market is desirable for both the
investors and borrowers, and it seems that there is political will towards it.
The Committee Report mentions some relevant issues relating to corporate bonds, but regardless of
the fact that the legal infrastructure has room for improvements, it is worth noting that the same type
of legal issues and uncertainties have not impeded the development of fairly successful markets in our
neighbouring countries. Regulatory questions should therefore not impede the development of a Danish market.
Therefore, bond issuances are worth considering for companies with a need for debt financing which
exceeds approx. DKK 200 million.
The process relating to issuing and listing of bonds on Danish markets is fairly simple. The new marketplace First North Bond Market does not require an actual prospectus or that accounts be presented
in accordance with IFRS. NASDAQ OMX Copenhagen A/S might become more attractive if the process
relating to the FSA’s approval of prospectuses were simplified.
The development of a Danish market also depends on major investors deciding to make it a priority to
participate in the development despite the fact that initially, it will imply more work than merely investing in similar securities on foreign markets. Provided that this will manifests, the tightened capital
adequacy requirements to the banks will push the development making it easier for borrowers and investors to agree on the commercial terms, including the price (interest) in particular.
The above does not constitute legal counselling and Moalem Weitemeyer Bendtsen does not warrant
the accuracy of the information. With the above text, Moalem Weitemeyer Bendtsen has not assumed
responsibility of any kind as a consequence of a reader’s use of the above as a basis of decisions or
considerations.
References
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Se more below and in Michael Camphausen: Erhvervsobligationer – omsider fri af den regulatoriske spændetrøje, Revision & Regnskabsvæsen 2012, nr. 9, p. 70 (in Danish). The FSA’s statement is available on the FSA’s website and is briefly described below in item 3.
The report is available on the Ministry of Business and Growth’s website: http://www.evm.dk/~/
media/oem/pdf/2012/pressemeddelelser-2012/22-11-12-udvalget-om-erhvervsobligationer/
rapport-udvalget-om-erhvervsobligationer-22-11-12.ashx.
Rule 144A in the Securities Act from 1933 (as amended) provides a safe habour from the registration requirements with SEC for certain offerings to qualified institutional buyers (“QIBs”).
An alternative with less paperwork involved might be to grant loans to a smaller group of American institutional buyers with so-called USPP (US Private Placement) transactions which has been
done by both Copenhagen Airports (2010) and Danish Crown (2005).
In 2009, however, AP Møller Mærsk A/S issued bonds with a total principal amount of EUR 750
million which was admitted to trading on NASDAQ OMX Copenhagen A/S.
The period between 2008 and 2012 saw a rise in the volume of new issuances of corporate
bonds denominated in Swedish Kroner from SEK 39 billion to SEK 83 billion (source: Bloomberg).
Consolidated Act No. 705 of 25 June 2012 on financial institutions as later amended.
Directive No. 2006/48/EC relating to the taking up and pursuit of the business of credit institutions.
Directive 2004/39/EC on markets in financial instruments and Directive 2006/73/EC on implementing Directive 2004/39/EC.
Consolidated Act No. 219 of 20 February 2013 on securities trading etc. as later amended.
Executive Order No. 644 of 19 June 2012 on prospectuses in public offerings between EUR
1,000,000 and EUR 5,000,000 of certain securities contains similar exemptions.
Section 3.3, page 7.
Further, covenants are generally of a different kind seeing as covenants in bond terms usually
relate to isolated dispositions such as payment of dividend (“incurrence covenants”) more than
ongoing repeated matters (“maintenance covenants”).
The Committee Report does not state any reasons for its reservation concerning this question,
cf. the Committee Report, page 56.
The limitation of the bond holders’s options must, however, depend on the agent’s authority
working according to its content.
U1938.583Ø and U1941.1027Ø.
Also see Herman Federspiel: Mere om trusten og særlig dens anvendelse i finansielle
transaktioner in U1999B, p. 363 (in Danish).
See Rammeskow Bang-Pedersen and Højlund, Den civile retspleje, 2nd edition (2010), p. 111 (in
Danish) with reference to U1999.20H and U2010.937Ø and Herman Federspiel op.cit.
HR-2010-568-A – Rt-2010-402, ruling of 7 April 2010.
See p. 3 of the Committee Report.
In this connection, identifying bond holders that do not respond to any approach to the relevant
custody accounts may prove to be a practical problem in that VP does not contribute to the identification of the relevant bond holders.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
Also see the reservation in Welltec’s prospectus, pp. 38-39: “To date, Danish courts hav addressed the issue of whether security can validly be granted to certain creditors from time to
time without specifically identifying such creditors, and whether such security can be properly
perfected without identification of each individual creditor. Accordingly, the Danish Security Documents may not be valid and enforceable.” Another matter is that the concerned issuer/issuing
bank will often be able to structure their way out of the problem, for instance by completing the
issuance through an SPV which will then relend to the operating company against a pledge in the
relevant assets.
Cf. Herman Federspil op.cit. p. 363. The Committee Report expressly recommends that this issue also be regulated, see p. 3 of the Report.
The rules in the Danish Financial Business Act, Section 163 (1)(iii), cf. Section 162 (1)(xiii), are
not conductive to the development of this market. They decide that only 2% of pension funds
and life insurance companies can include “other loans and securities”, including bonds – as those
admitted to trading on First North Bond Market – which have not been admitted to trading on a
regulated market, among the assets they require to cover the insurance related provisions, cf.
the Danish Financial Business Act, Section 159(1).
GXG Markets which offer both a regulated and non-regulated market may be an alternative for
smaller and medium-sized companies.
The Prospectus Executive Order is based on the requirements in the Prospectus Directive
(Regulation No. 809/2004/EC implementing Directive 2003/71/EC as regards information contained in prospectuses as well as the format, incorporation by reference and publication of such
prospectuses and dissemination of advertisements as amended by Regulation No. 211/2007/EC
and Regulation No. 486/2012/EC).
The FSA’s practice has been described in a document dated 1 July 2012: Practical information for
anyone contemplating admittance to trading on a regulated market and public offering of securities at a value above EUR 5,000,000, item 2.1. The document is available on the FSA’s website
(in Danish).
A bond prospectus for the purpose of listing on NASDAQ OMX Stocholm will be approved by the
Swedish Financial Supervisory Authority, Finansinspektionen, in approx. eight days. However,
the case handling time naturally depends much on the quality of the submitted draft prospectus.
The first and so far only company description was drafted by Danish Crown, see http://
www.danishcrown.dk/Investor/Virksomhedsbeskrivelse.aspx (in Danish).
See the aforementioned Danish Crown company description and the principles in the Prospectus
Executive Order, Section 18(2) and item 20,1 in its Appendix 1.
See NASDAQ OMX Copenhagen A/S’s rules for issuers of bonds, items 2.5 and 2.6. The requirement for an organizer’s statement is seen by some investment banks as a disadvantage to
NASDAQ OMX Copenhagen A/S compared to competing marketplaces.
Contact
Christoffer Galbo, Partner
Tel. +45 33 77 90 20
Mob. +45 30 37 96 20
Email [email protected]
Ted Rosenbaum, Junior Associate
Tel. +45 33 77 90 14
Mob. +45 30 37 96 14
Email [email protected]