Issuing Debt Securities - Make Way for the Prospectus Regulation!

Overview of the Prospectus Regulation

The Prospectus Regulation was published in the EU's Official Journal on 30 June 2017 and, for the most part, entered into effect on 21 July 2019. As set out in our previous briefing (here), key changes for debt securities include:

• an exemption for offers of securities to the public up to a total consideration in the European Union of less than EUR 1 Million;
• new requirements relating to risk factor categorisation, whereby risks must be categorised according to their materiality, and restrictions on the number of risk factors included in a summary;
• the extension of the alleviated disclosure regime for “wholesale” issuances to include debt securities that are traded solely on a regulated market or segment of a regulated market, accessible to qualified investors only, regardless of denomination, (which can be less than €100,000);
• provision for a shorter, more prescriptive summary, including limiting the length of a summary to no more than seven sides of A4 paper;
• base prospectuses for debt issuances programmes no longer have to include summaries, however issue-specific summaries will be needed when the final terms have been determined;
• a simplified disclosure regime for secondary issues available for companies that have had securities (debt or equity) admitted to trading on a regulated market or on a SME growth market for at least the last 18 months;
• frequent issuers have the option to draw up and publish every financial year a universal registration document; and
• the introduction of an EU growth prospectus, which allows issuers to draw up a simplified document when offering securities to the public, provided that their securities are not traded on a regulated market.

Legislative Framework

Like the existing Prospectus Directive, the Prospectus Regulation is supported by secondary legislation, namely:

• Commission Delegated Regulation (EU) 2019/980 supplementing Regulation (EU) 2017/1129 as regards the format, content, scrutiny and approval of the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market, and repealing Commission Regulation (EC) No 809/2004; and
• Commission Delegated Regulation (EU) 2019/979 supplementing Regulation (EU) 2017/1129 with regard to regulatory technical standards on key financial information in the summary of a prospectus, the publication and classification of prospectuses, advertisements for securities, supplements to a prospectus, and the notification portal, and repealing Commission Delegated Regulation (EU) No 382/2014 and Commission Delegated Regulation (EU) 2016/301.

For its part, ESMA has published a Q&A document concerning the new Prospectus Regulation regime (the “Q&A”), which contains a number of Q&A which were originally published in relation to the Prospectus Directive and which have been updated in relation to the Prospectus Regulation, as well as several new Q&A. According to the Q&A:

Moreover, ESMA has stated that it will continue analysing the existing Q&A published in relation to the Prospectus Directive and will either update and carry them forward in the Q&A document relating to the Prospectus Regulation, or will not carry them forward.

ESMA has also published Guidelines on Risk Factors under the Prospectus Regulation and, on 12 July 2019, issued a consultation on disclosure guidelines under the Prospectus Regulation.

On the domestic front, the European Union (Prospectus) Regulations 2019 (the "2019 Regulations") give further effect to the Prospectus Regulation and Prospectus Requirements are also set out in Part 4 of the Central Bank (Investment Market Conduct) Rules (the "IMC Rules"). The Central Bank of Ireland has also published Guidance on the Prospectus Regulatory Framework to assist users of the 2019 Regulations, the IMC Rules and related legislation.

Grandfathering

Although the Prospectus Regulation repeals and replaces the Prospectus Directive, prospectuses approved before 21 July 2019 will be grandfathered, meaning that they will continue to be governed by the old regime until either the end of their validity, or until 21 July 2020, whichever occurs first. As a result, and in accordance with the Q&A, the Prospectus (Directive 2003/71/EC) Regulations 2005 (the “Irish Regulations”) will continue to apply:

• when passporting a prospectus approved under the Irish Regulations, meaning that the relevant notification should be done pursuant to those regulations;
• when supplementing a prospectus approved under the Irish Regulations; and
• when filing final terms in relation to a base prospectus approved under the Irish Regulations – this means that the content of the final terms and the specific summary attached to those final terms must comply with the Irish Regulations, rather than with the Prospectus Regulation.

Significantly, however, according to the Q&A, as advertisements do not fall within the scope of the grandfathering provisions set out in the Prospectus Regulation, an advertisement published in relation to securities in a prospectus approved under the Irish Regulations, or any other national law implementing the Prospectus Directive, must comply with the rules set out in the Prospectus Regulation.  Notably, the Prospectus Regulation widens the rules applicable to advertisements to cover any “communications” (as compared to “announcements” under the Prospectus Directive).