Amendment Gives Bond Issuers Wings

    View Author September 2014

    On 1 August 2014, a new amendment to Act No. 137/2014 Coll., on bonds, came into effect, the purpose of which is to loosen the regulation of bond law and to provide issuers and investors with even more liberty in setting their mutual rights and obligations.

    • Significance of the bond issue terms and conditions being the fundamental contracting document between the issuer and investor has increased.
      • The bond issue terms and conditions may establish differently from statutory regulation the scope of so-called changes of principal character for which the issuer must always have obtained the opinion from the meeting of bond owners. Save for the exception of a proposal for a change in the bond issue terms and conditions requiring consent of the meeting of bond owners, this scope might not only be narrowed (e.g. it will not be required in case of merger of the issuer) but also made wider.
      • The bond issue terms and conditions may establish various subordination levels between various issues of subordinate bonds and even between various rights attached to the same subordinate bond.
    • Regulation on material requirements for bonds is now getting more liberal.
      • The material formal requirements for a documentary bond have been substantially reduced and newly do not contain even the necessity of stating that it is a bond. It is sufficient for a valid issuance of a documentary bond if the deed contains the issuer’s identification, nominal value, information on yield, information on maturity, identification of the bond owner and the issuer’s signature.
      • The maturity of bond may be determined not only by its date but also by another moment, of which it is certain that will occur.
      • Bonds may be issued completely with no yield whatsoever, i.e. that the yield is not determined even by the issue discount (the difference between the bond’s nominal value and its lower issue rate).
    • The amendment has regulated a special conditioned debt security, to which a right to receive payment of a certain outstanding amount is attached, which right however, as opposed to bond, is even a partially depending on whether a certain circumstance occurs or not. This conditioned debt security is not a bond, yet the legislator has admitted that it may be subjected, either fully or partially, to bond law, doing so by reference in the bond issue terms and conditions. The conditioned debt security will probably be used, above all, in situations where the issuer and investor are interested in issuance of a debt security, within which a part of the commercial risk is shifted to the investor, which fact will regularly be compensated by a higher yield.

    Should you have any questions regarding the amendment to the Act on Bonds, please do not hesitate to contact your lawyer at Squire Patton Boggs or any of the lawyers mentioned in this alert.