The Italian Minibond Market (Part II) Sabrina Setini Managing Associate Orrick, Herrington & Sutcliffe November 2013
Transaction A Title Description Structure Identification and selection of potential SMEs by an Investment Fund. SME SME SME Issuance of Minibond by selected SMEs. Admission to trading of the Minibonds on the ExtraMOt PRO Segment of the Italian Sock Exchange. Minibond Minibond Minibond Principal Steps Subscription of Minibonds by a closed-end Investment Fund reserved to professional investors (the Fund). Subscription of the Fund units by Professional Investors (as defined by Annex II, part 1 and 2 of Directive 2004/39/CE ( Mifid ) and article 100 of the Legislative Decree 24 february 1998, n. 58 (TUF). INVESTMENT FUND units Admission to trading on ExtraMOT PRO Segment The risk connected with the Minibonds is mixed in the asset of the Investment Fund which units are subscribed by Professional Investors. PROFESSIONAL INVESTOR mitigation of risk of investment 2
Transaction B Title Description Structure Selection by the Bank (as originator) among a panel of clients of Potential Issuers of Minibonds on the basis of certain criteria. Issuance of Minibonds by a certain numebr of SMEs. SME SME SME Minibond Minibond Minibond Subscription of the Minibonds by a Professional Investor (e.g. Bank or Investment Fund) and admission to trading on the ExtraMOT PRO Segment. Minibond BANK ORIGINATOR ARRANGER UNDERWRITER OR DISTRIBUTOR Principal steps The Bank may either subscribe directly the Minibonds or distribute them to professional investors (e.g. close-end Fund reserved to professional investors) for subscription. Subscription of the Fund units by Professional Investors (as defined by Annex II, part 1 and 2 of Directive 2004/39/CE ( Mifid ) and article 100 of the Legislative Decree 24 february 1998, n. 58 (TUF). INVESTMENT FUND units OTHER PROFESSIONAL INVESTORS Admission to trading on the ExtraMOT PRO PROFESSIONAL INVESTOR 3
Contractual Standard documentation for a Minibond Transaction 1. Letter of intent (between all the parties that structure the transaction in order to standardise its process) 2. Mandate Letter for the issuance of the Minibonds (between Issuer and Arranger of the issuance) 3. Loan Agreement (Regolamento del Prestito) (which sets the main terms of the issuance- duration of the loan, applicable interest rate, amount of the loan, conditions for the exercise of the early redemption of the loan, undertakings of the issuer, guarantees) 4. Subscription Agreement (between the issuer and the subscriber of the Minibonds) 5. Further documentation requested by the Italian Stock Exchange for the purposes of the admission request: (a) Admission request; (b) Agreement with an authorized SDIR (authorized dissemination system for disclosure of regulated information) appearing on the list held by Consob for the purposes of the information notice obligations (if any, should the Issuer instead NOT decide to publish the information notice provided for by the ExtraMOT Market Rules on its own website); (c) Table summarising the features of the Minibonds according to the outline of the Italian Stock Exchange. 6. Consultancy Agreement (between advisor and underwriter) 7. Distribution agreement (between issuer and distributor/placer or between investment fund and distributor/placer) 8. Underwriting agreement of Funds Units (between Fund and the underwriter of the fund units) 9. Agency Agreement (Agreement for the performance of the role of Agent Bank) 4
Minibonds: main steps to issuance The following slide will illustrate the main steps for the issuance by Italian unlisted small and medium sized enterprises (the SMEs ) of bonds or debt securities (hereinafter the Minibonds ) within the context of a transaction aimed to the admission to trading of the Minibonds on the professional segment of the ExtraMOT Market called Extramot PRO organized and managed by Borsa Italiana S.p.A. (the Italian Stock Exchange ) (the ExtraMOT PRO Segment ) and reserved to professional investors as defined by Annex II, part 1 and 2 of Directive 2004/39/CE ( Mifid ) and article 100 of the Legislative Decree 24 february 1998, n. 58 (TUF) ( Professional Investors ). The Issuance of Minibonds is structured as follows: (i) (ii) (iii) (iv) issuance of Minibonds by SME s subject to the satisfaction of applicable laws, regulations and regulatory requirements (including any selling restrictions provided by law); Minibonds admission to trading on the ExtraMOT PRO Segment; settlement of the Minibonds into the clearing system of Monte Titoli S.p.A; subscription of the Minibonds by Professional Investors ExtraMOT PRO Segment The new professional segment of ExtraMOT market started in February of 2013 is dedicated to the listing of bonds, commercial papers and project bonds. The aim of this new Segment was to create a national market flexible and with low direct and indirect costs for the Issuer which allows corporates and SME s to benefit from the tax advantages of the new regulatory framework (Decree-Law 83-2012). 5
Pre-Issue Obligations (A) (B) (C) (D) (E) (F) (G) (H) (I) Amendment (if any) to By-laws for commercial paper and debt securities Issuance resolution Register of the issuer ISIN Code request Opening an Account with Monte Titoli and request for admission of the Minibonds on the platform ( gestione accentrata ) Financial statements: publication by the issuer of its financial statements (including consolidated financial statements, where available) relating to the last two financial years, of which at least the last one has been audited (sufficientexternal accountant licensed as auditor ). Request for admission: submission, by the issuer or a market operator subject to prior consent from the issuer, of the request for admission of the Minibonds to the negotiation on the Professional Segment of ExtraMOT. Publication of the Prospectus or Admission Document: publication by the issuer (at least 3 days prior to the date provided for the admission to the negotiation on the Professional Segment of ExtraMOT) of the prospectus or document for admission to the negotiation. The timing of the publication may be agreed upon with the Stock Exchange. Negotiation notice: publication by the Italian Stock Exchange, within 7 days of the open market from the date of receipt of the request for admission to the negotiation, of the notice of the completed admission of the Minibonds to the negotiation on the ExtraMot PRO Segment 6
Pre-Issue obligations- Publication Prospectus or Admission Document Publication of the Prospectus or Admission Document The Issuer has to publish (at least 3 days prior to the date provided for the admission to the negotiation on the ExtraMOT PRO Segment) the prospectus or the document for admission to the negotiation. The timing of the publication may be agreed upon with the Stock Exchange. The Prospectus - publication of a prospectus according to the applicable provisions and annexes of the EC Regulation No 809/2004 (Commission Regulation (EC) implementing Directive 2003/71/EC of the European Parliament and of the Council as regards information contained in prospectuses as well as the format, incorporation by reference and publication of such prospectuses and dissemination of advertisements) or, as an alternative, Admission Document a document of admission to trading containing the information specified in the guidelines of Extramot Market. The prospectus or admission document shall be sent in draft form to the Italian Stock Exchange in order to verify the completeness of the information herein and accelerate the process of acceptance of the request for admission. In order to admit to trading bonds and debt securities on the ExtraMOt PRO Segment the publication of a listing prospectus pursuant to Directive 2003/71/EC of the European Parliament and of the Council (the prospectus directive) is not required. The Publication of the Prospectus or Admission Document can be done on the website of the issuer. 7
Pre-Issue obligations- Admission Document The Admission Document shall contain: 1) Responsability 2) Risk factors 3) Information on the Issuer (par.4.1 Annex IX Consob Regulation) 4) Management and governance 5) Principal Shareholders 6) Financial Information or last Financial statements 7) Descriptions of bonds/debt securities 8) Listing The Italian Stock Exchange has the discretionary power for setting the minimum information required for the admission to trading on the ExtraMOt PRo Segment: information from 1) to 6) could be omitted if the issuer is a listed company on a regulated market or MTF- considering the type of issuer, instrument or transaction the Italian Stock Exchange may propose different schemes and solutions 8
Pre-Issue obligations- Admission Document Risk factors A description of the specific risk factors relating to the Issuer and its core business should be included in the minimum content of the Admission Document: a) Risk related to the issuer s market b) Legal Risk (changing of the legal framework) c) Breach of financial covenants risk d) Risk associated with transactions with related parties e) Marcoeconomic risk f) Use of proceeds g) Liquidity risk h) Risk connected to indebtness of the Issuer 9
Post-issue obligations Following the publication by the Italian Stock Exchange of the completed admission of the Minibonds to the negotiation on the Professional Segment of ExtraMOT, the Issuer is obligated, in compliance with the ExtraMOT Regulation, to publish the following information: (1) the audited annual financial statement, without delay and in any case no later than six months after the conclusion of the financial year to which it refers; (2) any information on the issuer that may have an impact on the price/value of the Minibonds admitted to the negotiation; (3) any change in the features of the issuance as well as in the methods of exercising the rights of the Minibond holders; (4) the technical information concerning the Minibonds, i.e. information on the calculation of interest and any early redemption of the securities (in this case, the information notice must be provided to the Italian Stock Exchange at least 4 (four) days prior to the early redemption). 10
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