Flexible And Agile: What Do The UK Prospectus Regime Reforms Mean For Debt Capital Markets?

The recent release by the FCA of their consultation to reform the UK public offers and prospectus regime should be met with cautious optimism.

The FCA are concise in stating their objective: to "strengthen the UK's position as a global and vibrant financial centre". They intend to do this, they say, by promoting efficient and effective capital raising.

Our colleagues in equity capital markets have already published an excellent summary of the implications of CP24/12, the "Consultation on the new Public Offers and Admissions to Trading regulations regime" for equity issuers. Here we focus on the implications for Debt Capital Markets.

The framework

The Public Offers and Admissions to Trading Regulations (POATRs) were made by Parliament in January this year. They give the FCA greater discretion to set new rules and provide the framework for replacing the UK Prospectus Regulation. This consultation paper sets out the proposed rules which will form a new Prospectus Rules: Admission to Trading on a Regulated Market sourcebook (PRM). The POATRs and PRM will together form the basis of the UK prospectus regime.

Cutting costs

Reducing the instances where either an update to a prospectus is required or where a supplemental prospectus is needed has a direct impact on costs for issuers. One of the aims of this consultation is to reduce costs for issuers. There are three key ways in which they propose achieving this:

1. By allowing the incorporation by reference in MTN base prospectuses of future financial information, provided that the information is published through a regulatory information service;
2. Increasing the flexibility around what can be included in supplements, thereby reducing the instances where an updated prospectus is required; and
3. Increasing the threshold for triggering the requirement for a prospectus for further issuances that are fungible from 20% to 75% across all asset classes.

Information requirements

Whilst the FCA does not intend to create a bond standard for sustainability labelled debt securities, it is proposing a voluntary set of disclosure rules for use of proceeds bonds and sustainability-linked bonds. These will apply to corporate issuers only. They don't differ much from current best practice and are similar to expectations under the EU prospectus regime.

They also want to encourage the disclosure of forward-looking information, and intend to do so by establishing different liability thresholds for certain types of forward-looking statements. This may at first appear more relevant to equity issuances, but may become more important for debt issuances in the context of sustainability disclosures.

Increasing access

Retail investors are another key focus area for the FCA. There will be a separate consultation on this later in the year, but in the meantime they are proposing some additional flexibility for retail issuances, where the requirement for detailed financial information in the summary will be removed and the page limit for summaries will be increased from 7 pages to 10 pages.

Winds of change or a subtle fine-tuning

Reading the consultation it is difficult to come away with the sense that there is going to be a wholesale shift in the way issuers access the capital markets, certainly from a debt capital markets perspective. But that was never what the FCA set out to achieve. Instead they want to allow greater flexibility and more agility for issuers, and whilst we need to await the final rules, there is optimism that this is a step in the right direction. By removing barriers for secondary issuances (the 20-75% threshold increase is significant) it would allow greater flexibility for issuers to be more agile in their fundraisings. The relaxation of the requirement for supplemental prospectuses should also go someway to reducing overall costs. What remains to be seen is how this might fit with the more detailed disclosure requirements of other jurisdictions.

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