World’s Bond Issuers Study Greek History for Brexit Advice

Updated on
  • Greek borrowers amended clauses during turmoil over bailout
  • Sisal, Transocean added U.K. disclosures to recent bond sales

Corporate borrowers from around the world could turn to Greece for guidance after the U.K.’s vote to leave the European Union.

Bonds sold by some Greek companies provide a blueprint for how to protect investors from country-specific exposure, according to Christine Tadros, head of European research at Xtract Research LLC. Yogurt maker Fage International SA and Frigoglass SAIC, which makes commercial refrigerators, eased bond-buyers’ concern about Greece’s euro-area membership by boosting protections when they sold debt three years ago. Similar tweaks could now help issuers with U.K. operations.

“With the Greek issuance that we did see, there were certainly some very innovative ways of dealing with the situation,” Tadros, formerly a lawyer at Norton Rose and Sherman & Sterling LLP, said by phone from London. “You can modify those covenants to essentially put the U.K. business in the same group as an unaffiliated entity.”

Corporate bond offerings stalled in the immediate aftermath of Britain’s June 23 vote as investors ditched higher yielding assets in favor of safe havens, curbing companies’ funding plans. Now, with sales tentatively restarting, analysts are considering how bond prospectuses should change to reflect ongoing uncertainty in one of the world’s largest economies.

Greek Tutorial

Upheaval in Greece, which began in 2009, provides a useful precedent, according to Tadros. To sell notes in 2012, Fage added terms to limit cash and asset leakage into Greece from businesses outside the nation. Frigoglass inserted a clause limiting the indebtedness of the Greek parent for a bond sale in 2013. Other companies -- such as Coca-Cola HBC AG and Globo Plc -- reorganized their businesses to minimize the Greek connection.

Covenants, such as a fixed-charge coverage ratio or restrictions on permitted debt, could be amended to cap the funds available to a borrower’s U.K. business, while a ‘restricted payments’ term could protect the rest of the company from Brexit contagion, Tadros said.

Brexit Disclosures

Teva Pharmaceutical Industries Ltd. included a risk factor entitled “The vote by the United Kingdom to leave the EU could adversely affect us” in the offering documents of its $15 billion note sale this week, the Israeli drugmaker’s debt prospectus shows.

Sisal Group SpA, an Italian gaming operator that CVC Capital Partners is buying, and offshore driller Transocean Ltd. also both offered Brexit disclosures in bonds sold this month, according to Tadros. Future disclosures may breakdown U.K. revenue and include management comments on how currencies are impacting the company, she said.

Pam Easton, a spokeswoman for Transocean, declined to comment on the bond’s disclosures. Calls and e-mails to Sisal’s media and investor-relations team weren’t immediately returned.

Debut and smaller issuers may be the first to modify disclosures and boost covenants to address investors’ Brexit concerns.

“They will be a lot more circumspect before going to roadshow,” said Tadros. “The repeat issuers who have a lot of leverage and are backed by very strong sponsors may be a little more complacent about it and a bit more reactive.”

— With assistance by Leo Laikola, and Sridhar Natarajan

(Updates with Teva bonds in seventh paragraph.)
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