Junk Bond Issuers to Face Tougher Disclosure Standards in Europe

  • AFME set to update guidelines for high-yield borrowers
  • Recommendations said to include publishing financial data

Junk bond investors’ campaign for better disclosure in Europe is starting to reap rewards.

The Association for Financial Markets in Europe is set to recommend that high-yield companies make financial information public on websites and hold regular conference calls with market participants, according to two people familiar with the plans, who asked not to be identified because the amendments haven’t been published. AFME will update guidelines in coming weeks, said Gary Simmons, managing director of the group’s high-yield division. He declined to comment on the details.

Creditors’ calls for better disclosure are gaining traction as concerns about low commodity prices and slowing economic growth suppress demand for risky assets. Though the new guidelines won’t be legally binding, they’ll set a standard for bond buyers to demand greater transparency from borrowers.

“The power is a bit more with investors at the moment,” said Felix Fischer, a credit analyst at independent research provider Lucror Analytics in Singapore. “These guidelines show the steps that can be taken to boost disclosure in Europe.”

Guideline Update

The changes were agreed last month at a meeting in London of the industry body’s high-yield board, which represents investors, bankers and lawyers, the people said.

The industry body will recommend that companies improve access to their financial information by scrapping confidentiality agreements and removing password and registration requirements from websites, according to the people. That comes after investors sent a list to bond arrangers last year of more than 75 closely-held borrowers they deemed too protective of data.

It will advise companies to share information with all market participants simultaneously to avoid favoring certain investors and disadvantaging others, the people said. AFME will also recommend that borrowers include a covenant in bond documentation that binds them to holding conference calls with all relevant market participants after reporting earnings, according to the people.

Earnings Calls

Salt Mobile SA, the Swiss phone company bought by French billionaire Xavier Niel, upset investors when it reduced earnings calls to one a year from four and said it wouldn’t publish key information such as subscriber figures quarterly. The move was in the interest of all stakeholders because it reduced the amount of information given to competitors, Olivier Rosenfeld, a director and board member at Salt, said at the time.

“Guidelines are useful because they make it clear what the market sees as best practice,” said Marc Pierron, a credit analyst at Spread Research, an independent credit research firm based in Lyon, France. “It all depends how many companies follow these guidelines.”

The balance of power may be shifting as investors push back after years of Europe’s riskiest companies taking advantage of record demand for high-yield bonds. Junk bond sales this year are down about 68 percent from a year earlier at 7.7 billion euros, data compiled by Bloomberg show, even though average yields are near the lowest this year at 5.12 percent, according to Bank of America Merrill Lynch index data.

“The more that we do to help the European high-yield market grow, the better it will be for companies looking to expand their financing opportunities,” AFME’s Simmons said. “These industrywide initiatives can help such growth by strengthening and instilling confidence in the market.”

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