Terms and conditions
The terms and conditions in the prospectus are the contract between the issuer and the bondholders. They set out the coupon, payment dates, maturity, ranking, early redemption rights, covenants, events of default and governing law.
Common protections
- Pari passu clause – the bonds rank equally with the issuer's other senior unsecured debt.
- Negative pledge – the issuer agrees not to give security to other bondholders without giving the same security to these bonds.
- Cross-default – a default on other debt above a threshold can also be an event of default on the bond.
- Change of control – holders may be able to sell the bonds back, often at 101, if the issuer is taken over.
- Tax gross-up – the issuer pays extra so that investors receive the full coupon if withholding tax is introduced.
Trustee or fiscal agent
Under a trust structure, a trustee acts for all bondholders and can take enforcement action on their behalf. Under a fiscal agency structure, the agent acts for the issuer and each holder enforces individually.
Governing law
Most Eurobonds are governed by English law or New York law, both well-tested legal systems familiar to international investors.
Bondholder meetings
Terms can usually be changed only with the consent of a defined majority of holders, through meetings or written resolutions. Some core terms, such as payment amounts and dates, need higher majorities.