OFFERING DOCUMENTATION & DISCLOSURES

Introduction

Investing in bond markets can be risky in that the return is asymmetrical. When bonds default, they tend to cause a significant investment loss. Therefore, investors should pay special attention to various offering documents and disclosures made by issuers before investing.

Term Sheet

The term sheet is a document that outlines basic terms and conditions (e.g. yield, price, tenor, maturity date, etc.) under which an investment will be made. It is effectively a snapshot of the offering and helps investors develop a general understanding of the new issue.

Bond Prospectus

The bond prospectus is a legal document that provides all relevant details pertaining to a bond offering for sale to the public. It includes extensive information regarding the issuer and the new issue that helps investors make informed investment decisions. The first prospectus investors receive is the preliminary prospectus. This document includes business nature, management strategy, organizational structure, operational activities, financial statements, details of the offering (except pricing and size), and investment risks.

The second prospectus investors receive is the final prospectus, which is filed after the bond issuance has been finalized and completed. This document contains the all details of the new issue, including price and size.

Offering Memorandum

The offering memorandum is a legal document that states the objectives, risks, and terms of an investment involved with a private placement. Offering memorandums closely resemble prospectuses, but are for private placements, while prospectuses are for public offerings. Like the bond prospectus, the offering memorandum contains the issuer’s financial statements, management structure, business overview and operations, and other pertinent details. Similarly, the offering memorandum serves to provide buyers with information on the offering and to protect the sellers from the liabilities associated with selling unregistered securities.

Indenture

The indenture is a legally binding contract between the bond issuer and bondholders. It is the reference document used to resolve conflicts between the issuer and investors. The indenture specifies important features of the bond (e.g. maturity date, method of interest calculation, bond optionality, etc.). It contains all the terms and conditions applicable to the bond and the enforceable actions on those conditions to protect investor interests. The indenture also includes explicitly defined formulas for calculating the financial covenants to ensure the issuer acts within the limitations of the covenants.