DOCUMENTATION

Purpose of Documentation

The issuer, dealers and the legal counsels representing each side, draft legal documentation and file them to the appropriate regulatory bodies (e.g. SEC in U.S., OSC in Ontario) to aid investors in their investment decision. These documents provide all pertinent details regarding the new issue and provide legal protection such as covenants to investors as well as the appropriate enforceable legal actions (indenture). Documentation also support the issuer or dealers’ decision points throughout the debt issuance process. They are used to disseminate information regarding a new issue to prospective investors.

Prospectus

The bond prospectus, also known as the “offering document”, is a legal document that provides all relevant details pertaining to a bond offering for sale to the public. It should contain all facts regarding the issuer and the new issue so that investors have everything they need to make an informed investment decision. Read more about prospectuses here.

Offering Memorandum

The offering memorandum is a legal document that states the objectives, risks, and terms of an investment involved with a private placement. This includes the issuer’s financial statements, management structure, business overview and operations, and other pertinent details. 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. Offering memorandums closely resemble prospectuses, but are for private placements, while prospectuses are for public offerings.

Term Sheet

The term sheet is an agreement that outline the basic terms and conditions (e.g. yield, price, tenor, maturity date, etc.) under which an investment will be made. Dealers also use the term sheet during the execution process to market the new issue to prospective investors.

Indenture

The indenture is a legally binding contract between the bond issuer and bondholders. It is the reference document used for conflict resolution if a conflict arises between the issuer and bondholders. The indenture specifies important features of the bond (e.g. method of interest calculation, callable/convertible features, 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 the financial covenants that explicitly outline the formulas governing the issuer to ensure that they are acting within the limitations of the covenants.