Earnings Secrecy to End in Junk-Bond Market Under EU Rules

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  • Issuers must publish results to meet tougher standards
  • Investors have pushed for greater financial transparency

Europe’s securities regulator said junk-bond issuers can no longer hide earnings behind password-protected websites, the first time it has commented on how new transparency rules affect market access to financial reports.

Companies have to widely distribute price-sensitive information, including results, to meet toughened inside-trading regulations, the European Securities & Markets Authority said in an e-mailed reply to Bloomberg News questions. Password-locked websites fail to meet this standard, it said. The rules apply to all companies with debt listed in the European Union.

Aston Martin, the luxury-car maker, theme-park operator PortAventura and German retailer Takko Fashion are among junk-rated companies that post earnings onto restricted websites, giving them control over who can see the information. Investors have pressed for private companies that have debt to end this practice so they can better gauge potential returns among inherently risky companies. 

“This will make our lives easier,” said Andrew Wilmont, head of European high-yield investment at Neuberger Berman, which oversees about $250 billion. “It’s a step in the right direction for transparency.”

Greater Transparency

The changes are the result of the European Union’s July 3 implementation of the Market Abuse Regulation, or MAR. The new regime increases disclosure requirements for companies with bonds listed on exchanges within the trade bloc. Previously, the toughest rules only applied to businesses with shares listed on major bourses.

ESMA determines how trading rules should be applied in the EU, while national regulators enforce them. Most companies list their European debt on exchanges in Dublin and Luxembourg.

A group of junk-bond investors complained last year to arrangers about a lack of transparency and created a list of more than 75 borrowers that they deemed too protective of data, four people familiar with the matter said at the time. The Association for Financial Markets in Europe, a London-based trade group, has also sought greater transparency.

Restricted Access

Aston Martin, PortAventura and Takko were among the companies cited by the investors as examples of poor transparency, the people familiar said. All three companies still restrict access to their earnings reports online. Bloomberg News requested passwords via the websites on Tuesday. No responses have been received.

U.K.-based Aston Martin communicates “regularly with our investors and bondholders” in a way that complies with all regulations including MAR, it said in an e-mailed reply to Bloomberg News questions. A spokesperson for PortAventura declined to comment on the password requirements.

Takko said it’s reviewing the use of passwords alongside a redesign of its corporate website. Restricting access is intended to “counter the misuse of sensitive data,” the retailer said by e-mail.

The risk for investors from MAR is that the push for greater transparency could backfire by encouraging issuers to list debt on non-EU exchanges, with lighter regulations and lower compliance costs. Still, MyDentist, which sold Channels Islands-listed bonds in July, doesn’t restrict access to earnings reports on its website.

“Any banning of password-protection is positive for the market,” said Mikkel Velin, a high-yield portfolio manager at London-based Rogge Global Partners, which oversees about $40 billion. “The more information we have access to, the better basis we have for assessing and pricing the upside and downside risks in our investment.”