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Debt Issuance from 2020: Themes for the year ahead

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As 2020 starts in earnest our “back-to-school” publication provides an update of some of the key themes likely to impact wholesale debt issuance in the year ahead.
 
In the following pages we provide a high-level summary of (and details of where you can find more information on) the Prospectus Regulation, interest rate reform, EU updates to bank prudential rules, green and sustainable finance and Brexit.

  • With the Prospectus Regulation finally applying in full in the summer of 2019, we consider trends in the review of prospectuses by competent authorities; albeit, the implications of this cornerstone element of the EU’s Capital Markets Union are unlikely to be fully understood until after the expiration of the grandfathering provisions.
  • Regulators continue to encourage the market to develop solutions for IBOR transition. We summarise the momentum being built in the bond market.
  • Global regulatory and market focus has increased on environmental, social and governance (“ESG”) issues. Upcoming regulatory changes are  expected to impact disclosure requirements for bond issuers. 2019 saw the Italian company, ENEL, issue the first European general purpose sustainable bonds which are linked to the UN’s Sustainable Development Goals. Could this structure, borrowed from the loans market represent a new trend for bond financing?
  • The updated EU bank prudential measures entered into force this year. The impact of this complex package on banks and bank issuance will continue to be seen in 2020.
  • With a no-deal Brexit in January 2020 almost certain to be avoided, the focus of mainstream DCM market participants will now be on the practical and documentation implications of the UK entering the transition period and beyond. Once the UK is formally no longer a member of the EU, market participants will need to consider changes when drafting contracts or other documents; for example to make sure the UK is not inadvertently excluded where there are references to the EU.

The EU Prospectus Regulation - Bedding down
Interest Rate Reform – Practical implementation
Green and Sustainable Finance
EU updates bank prudential rules
Brexit – planning for the year ahead

Prospectus Regulation icon

The Prospectus Regulation, which repealed and replaced the Prospectus Directive, became fully and directly applicable in all Member States on 21 July 2019. The use of a regulation was intended to ensure a consistent approach across Member States. Present indications are that some progress has been made in this regard, although completion of this objective is yet to be fully achieved.

"New disclosure requirements could surprise the unwary issuer."

Interest Rate Reform icon

With just under two years remaining to the end of 2021, beyond which the continuation of LIBOR is not guaranteed, the transition away from LIBOR in the bond market is gaining traction. The adoption of riskfree rates in the floating rate note (“FRN”) market has shown promising momentum, with significant issuance over the last eighteen months in SONIA, as the risk-free rate in place of GBP LIBOR.

"The transition away from LIBOR in the bond market is gaining traction."

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Green and Sustainable Finance icon

An increasing public awareness of climate change, coupled with the realisation that government action alone will be insufficient to tackle the climate crisis, has led to a growing focus on mobilising private finance to effect climate action. This has seen the green and sustainable bond market expand considerably over 2019, with continued growth predicted.

We explore the global, pan-European and UK-domestic factors that we anticipate will have a significant impact on the green and sustainable bond market in 2020 and beyond.

"The taxonomy seeks to place ESG considerations at the heart of the financial system."

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EU Bank Prudential Measures icon

Following a lengthy period of intense negotiation between the EU Council, Parliament and Commission, the prudential regulation measures contained in the amendments to (i) the Capital Requirements Regulation (“CRR2”); (ii) the Capital Requirements Directive V (“CRDV”); (iii) the Banking Recovery and Resolution Directive (“BRRD2”); and (iv) the Single Resolution Mechanism Regulation (“SRMR 2”) were published in the Official Journal in June 2019.

"The new rules may prompt a wave of new issuance by EU banks in the months ahead."

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Brexit icon

With a no-deal Brexit in January 2020 almost certain to be avoided, the focus of mainstream DCM market participants will now be on the practical and documentation implications of the UK entering the transition period and beyond.

The UK is expected formally to leave the EU on 31 January 2020 (“exit day”), however the practical impact of this will be limited during the transition period which will follow pursuant to the EU-UK Withdrawal Agreement. This is expected to apply until 31 December 2020 absent any extension.

"If no extension to the transition period is agreed, and no equivalence is agreed, then from a financial services perspective a “no-deal” Brexit will effectively occur on 31 December 2020."

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Video series

Watch our series of three short videos discussing the new Prospectus Regulation, interest rate reform, and green and sustainable finance.

Prospectus Regulation

In the first video in our series, Carson Welsh considers the practical implications of the new Prospectus Regulation for issuers, many of whom will be updating programmes for the first time under the new regulation this year.

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Interest Rate Reform

In this second video Neil Dixon considers interest rate reform and related developments in the bond market.

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Green and sustainable finance

In our third video Amrita Ahluwalia discusses recent market developments in green and sustainable bonds as well as giving an overview of some of the regulatory initiatives that will impact bond market participants. 

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