Bermuda: Bermuda BSX: Guide To Listing Debt Securities

INTRODUCTION

Since 1971, the Bermuda Stock Exchange ("BSX") has provided a dedicated listing and trading facility for the specialist products of the Bermuda and international financial industry.

The BSX is a leading offshore international exchange for the listing of a variety of financial products including investment funds early stage pre - IPO entities, specialised insurance products (ILS), specialist and structured debt, and alternate investment vehicles, providing institutionally-focused, specialised services to a global client base. Bermuda's competitive strength in global financial services lies in its ability to provide an effective and cost-efficient tax neutral platform for international capital flows in an environment of economic and political stability.

BSX LISTING REGULATIONS

The BSX's Listing Rules (the "Listing Rules") are sophisticated and designed to contemplate innovative structures, combining reasonable and appropriate disclosure requirements with the flexibility necessary for the specialised instruments that list on the BSX. The Listing Rules have been drafted and procedures implemented to ensure that the BSX meets all international regulatory standards while ensuring that listing and continuing obligation requirements are appropriate for the sophistication of the investor pool. As such listing of eligible debt securities can be accomplished within 7 days of a formal application at an internationally competitive listing fees.

This guide contains a summary of the main requirements for the admission of debt securities of issuing companies listing on the BSX.

This guide provides summary information and is a precursor to a more detailed and comprehensive discussion of a proposed listing. Specific legal advice should be sought based on the particular circumstances and facts at the relevant time.

Listing Requirements and Eligibility for Listing

The Listing Rules are intended to reflect current internationally accepted standards and practice. Any issuer seeking to list debt securities must have satisfied the following general requirements to be regarded as eligible for listing:

  • the issuer must be in the opinion of the BSX, to be suitable for listing;
  • the debt securities themselves must be negotiable and freely transferable between investors;
  • the debt securities must be eligible for deposit in a clearing and settlement system recognised by the BSX; and
  • the issuer must maintain a paying agent for the period of the listed debt securities (this could be the issuer acting as the agent).

Traditional Bonds and Notes (e.g. Eurobonds)

In addition to the general eligibility criteria set out above, any new applicant must be either:

  • a supranational body recognised for this purpose by the BSX (the BSX maintains a list of 'recognised' supranational bodies); or
  • a government or a governmental agency whose obligations are irrevocably guaranteed by a government; or
  • an exempted issuer which is incorporated in Bermuda and which has consolidated net tangible assets of at least $10 million; or
  • have a primary listing for its share capital, or the debt securities for which a listing is sought, on another stock exchange which is recognised for this purpose by the BSX; or
  • restrict investments in the listed debt securities to 'Qualified Investors' in a manner acceptable to the BSX. This means that the securities may only be marketed and traded between 'Qualified Investors'. (For further information on Qualified Investors please see 'Qualified Investors' below).

Applicants are generally required to provide independently audited financial statements for the two years preceding the listing application (the BSX at their discretion may waive or reduce this requirement in certain circumstances). This requirement does not apply to a special purpose vehicle which has been incorporated for less than two years.

Specialist Debt Securities

The BSX also permit the listing of specialist debt securities (including asset backed securities), although these securities may only be marketed to 'Qualified Investors' and subsequently traded between Qualified Investors.

When issuing asset backed securities, the following must be appointed for the issuer:

  • a trustee or other independent representative to represent the interests of the holders of the asset backed securities (and that representative must have access to appropriate information relating to the underlying assets); and
  • a custodian acceptable to the BSX, with the responsibility of holding the underlying assets and having custody, possession or control of any funds flowing from the assets to the issuer or to the holders of the debt securities (or if appropriate the trustee appointed can take on this role).

Qualified Investors

'Qualified Investors' are those who are sophisticated and knowledgeable and able to meet one or more of the following tests:

For individual investors:

  • an investment of not less than $100,000 in the relevant issuer; or
  • having annual individual income of $200,000 for joint with; or
  • having an individual or combined (with his or her spouse) net worth in excess of $1,000,000.

For private corporations or partnerships:

  • an investment of not less than $100,000 in the relevant issuer; or
  • total net assets in excess of $5,000,000; or
  • all equity owners/partners are 'Qualified Investors' as described above.

Timing/Rapid Response

Issuer seeking a listing for debt securities must submit an initial application to the BSX. Such application should include the initial fees and provide a draft copy of the prospectus. The BSX will then respond to the initial application within 2 or 3 working days and may ask questions following its review of the draft prospectus.

Once any concerns have been addressed, the issuer may continue on to the formal application stage. The Listing Committee will review the application and make a decision within 7 business days from the date of submission.

LISTING PROCESS

The listing process can be summarised into a number of steps as follows:

CONTINUING OBLIGATIONS

Once listed, the issuer is obliged to comply with certain obligations to the BSX. The issuer must take reasonable care to ensure that any statement or document to be submitted to the BSX is not false, misleading or deceptive. The issuer's continuing obligations include providing any information relating to the issuer or the group that:

  • is necessary to enable the public to appraise the financial position of the issuer and the group;
  • is necessary to avoid the establishment of a false market in its securities; and
  • might reasonably be expected to materially significantly affect the issuer's ability to meet its commitments.

If the issuer's securities are also listed on another exchange then copies of all documents to be filed on the other exchange must be simultaneously be filed with the BSX.

Financials

In addition to the continuing obligations, the issuer must prepare and send audited annual accounts to the trustee or fiscal agent and to all debt security holder annual accounts within six months of the end of the financial period to which they relate. A copy of any interim financial statements that are published by the issuer must also be sent to the trustee or fiscal agent once prepared. At the same time these are delivered by the issuer to the trustee or fiscal agent, the accounts should also be sent to the BSX.

DISCLOSURES

In addition to the continuing obligations, the issuer shall also be required to disclose on an ongoing basis the following information to the BSX including (without limitation):

Purchase, redemption or cancellation

An issuer must comply with the provisions of the Regulations when repurchasing its own securities. Following any purchase, redemption or cancellation by the issuer, or any member of the group, other than in accordance with the listing Regulations, the issuer shall deliver to the BSX without delay a written notice containing details of the matter for dissemination by the BSX. The notice must include the amount of the relevant debt securities outstanding after such operations. In addition, where an issuer intends to repurchase in excess of 20% of its listed securities, the issuer must first contact the BSX in order to obtain prior approval.

After Board Meetings

The issuer must inform the BSX after approval from the board of directors, for dissemination by the BSX of (i) any new issue of debt securities; (ii) proposed changes to the issuer's capital structure; and (iii) any change to the general character or nature of business of the issuer.

Changes

The issuer must inform the BSX of any decision made in regard to:

  • alter the issuer's constitution;
  • changes to the board of directors (including the production of a signed declaration and undertaking from each new director);
  • any change in the rights attaching to any class of listed debt securities (including a change in the rate of interest) including any changes in the rights attaching to the shares into which any listed debt securities are convertible or exchangeable; and
  • any changes to the issuer's listing sponsor, secretary, auditors, registered address, transfer agent or registrar.

Decisions to pass interest payments

Any decision to pass any interest payments must be disclosed to the BSX, without delay, for dissemination by the BSX after the decision is made.

Proposed Drawings and closure of books

The issuer shall inform the BSX in advance of all proposed drawings to effect partial redemptions and in the case of registered debt securities, the date on which it is proposed to close the books for the purpose of making a drawing. The BSX must also be informed of the amount outstanding of the debt securities after any such drawing has been made.

Winding-up and liquidation

The issuer must inform the BSX, on the happening of any of the following events as soon as the same shall come to the attention of the issuer:

  • presentation of a winding-up petition;
  • passing of any resolution by the issuer, or major subsidiary, or to be wound-up by way of a members' or creditors' voluntary winding-up;
  • entry into possession of or sale by any mortgagee effecting a portion of the issuer's assets which in aggregate represents an amount in excess of twenty percent (20%); or
  • the making of any judgement, declaration or order by any court or tribunal of competent jurisdiction whether in appeal or at first instance, effecting 20% of the book value of the consolidated net tangible assets or trading profits of the group.
Fees
Initial Fees $2,500 This is non-refundable and payable on application.
Annual Fees $1,000 per issue Payable at the time of formal application and thereafter annually in advance
Subsequent Issue Fees $2,500 Payable in the event of a subsequent issue of debt securities (not being part of a debt programme)
Programme Initial Fees $500 This is non-refundable and payable on application.
Programme Annual Fees $500 In respect of each subsequent issue of debt securities pursuant to a debt issuance programme approved by the BSX

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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