Legal feasibility checklist: Listing intra-group debt as a Quoted Eurobond

This article provides a preliminary checklist of legal feasibility issues when using Quoted Eurobonds to address UK withholding tax on debt between related parties. It is designed to help you decide whether the project is likely to be straightforward or not. You should also discuss the relevant issues with your advisers.

In essence, this kind of project involves the borrower issuing an interest-bearing security in the form of loan notes. The loan notes are listed on an appropriate stock exchange, typically the Channel Islands Securities Exchange or the Cayman Stock Exchange.

Checklist

1. Does the listing relate to existing debt or new debt?

If existing debt, then the terms of the debt will often need to be varied so that it is represented by loan notes. In practice this should not delay matters, but simply requires appropriate legal documentation.

2. What is the borrower’s trading history and balance sheet position?

The exchange is unlikely to be comfortable with a company with ongoing operating losses or negative net assets.

3. Are the borrower’s last accounts unqualified?

The exchange is unlikely to be comfortable with qualified accounts.

4. Who are the borrower’s directors?

Usually there should be at least two directors, and there should be nothing in the directors’ backgrounds which might raise concerns with the exchange.

5. In which countries does the borrower (issuer) operate?

Operations in politically unstable countries or ones associated with terrorism may raise concerns with the exchange.

6. Is the borrower’s group subject to any restrictions on the listing of securities?

Restrictions may be contained in finance agreements or other contractual arrangements. If applicable, third party consents may be required.

7. Is the debt secured?

If so, the security may need to be modified so that it is held by a security trustee for the benefit of loan note holders.

8. Is the debt subordinated to a third party creditor?

If so, the creditor’s co-operation will be needed in order to replicate the subordination arrangements.

9. When does the first interest payment under the listed Eurobond need to be made?

Typically, a listing of this kind will take at least a month to complete.