UK: The Impact Of Brexit On Debt Capital Markets

On 23 June 2016, the UK electorate voted in favour of exiting the European Union. Whilst the UK will not leave the EU in the immediate future, issuers of, and investors in, existing debt capital market transactions or those issuers contemplating establishing new issuance of debt programmes in the EU will need to consider what this vote means, how quickly this will have an impact on and the potential knock-on effects on investors, and other customers. This article considers certain key legal considerations for debt capital markets issuers in light of the UK electorate's vote to leave the EU ('Brexit'). While the date on which Article 50 of the EU Treaty will be triggered ('Trigger Date') has not been set, the government has now advised that it will not be before early 2017. Prior to this, the government hopes to engage with businesses to understand better the most pressing issues and to negotiate the best deals possible for the UK in general and business in particular.

Currently, the legal and regulatory framework for debt capital market ('DCM') transactions remains subject to EU Directives and Regulations. While all EU Directives are implemented through national laws of the UK, Regulations are directly applicable to all EU Member State parties to a DCM transaction without the need for the UK Parliament to take any further legislative action. As such, it remains to be seen if and how Regulations in the UK will be implemented once the UK is officially out of the EU and whether UK laws implementing EU directives will remain in place. We will continue to publish articles on the key considerations set out below, as policies and laws develop in relation to these issues.

A point on timing

The UK is not in a post-Brexit environment as yet. In order to leave the EU, the UK must invoke Article 50 of the Treaty on European Union.1 Under the terms of Article 50, before the UK leaves there will be a two-year period for the negotiation of a withdrawal agreement with the Council, acting by enhanced qualified majority with the consent of the European Parliament.2 The negotiating period will have a two-year limit, unless the European Council, in agreement with the Member States concerned, unanimously agrees to extend this period. In other words, either an agreement is reached on the terms of withdrawal, including the withdrawal date, within two years of the notification of the Trigger Date, or withdrawal takes place automatically at the end of the two years. The negotiating period may be extended beyond two years if there is an unanimous decision by the remaining 27 EU Member States.

As with existing transactions, some new transactions would not be affected by Brexit itself because of how long it is likely to take for the UK to leave the EU although, as with existing transactions, some may be affected by the uncertainty and financial market volatility.

Key Considerations

1. Passporting

In the negotiations with the EU on the terms of UK withdrawal, the main question affecting capital markets will be the terms for future UK access to the EU Single Market for financial markets. Currently, UK institutions have unrestricted free access through the "single market passports" as a member of the EU.

In the DCM context, the concept of passporting is particularly relevant when issuers consider an issuance of bonds under a Prospectus Directive ('PD') compliant prospectus to investors in EU Member States. Under the existing PD, if an issuer is offering any PD compliant bonds, as long as the prospectus has been approved by the issuer's 'home' Member State, it can offer the bonds to investors in any other EU Member State without the need to obtain any additional approvals in the investors' Member States.

The existing PD has been implemented into national UK legislation. To the extent that the PD changes after the UK formally leaves the EU, it will be a question for the UK to determine whether it wishes to implement any changes that may positively impact on existing EU legislation that it had adopted prior to Brexit. The European Commission has the power to approve a non-EEA prospectus regime if it meets standards which are equivalent to EU requirements. As such the European Commission could make a finding of "equivalence" with respect to any future UK prospectus regime. It also remains unclear how the European Commission will address the approval of a prospectus for a new issuance under an existing PD compliant programme. We believe there may be grandfathering of prospectuses for pre-Brexit PD compliant programmes. However, it remains to be seen how the European Commission will deal with such prospectuses and from what point in time any grandfathering provisions will be applicable.

2. Clearing of euro-denominated payments

In addition to euro-denominated payments, a significant portion of euro-denominated swaps clear through London. If the UK no longer has access to the single market, it remains unclear (i) whether euro-denominated swaps will continue to clear through London and (ii) how London's role as a significant financial centre for euro-denominated markets will be affected.

3. Prospectus disclosure and Risk Factors

It is possible that some new debt capital markets transactions will specifically contemplate the impact of Brexit as part of the disclosure in prospectuses. However, it seems likely that such disclosure will be reflected only to the extent that it is relevant.

There has been a significant increase in the inclusion of Brexit-related risk factors in prospectuses in the run up to, and following, Brexit (for example in the Prospectus Supplement dated June 30, 2016 issued by Brown-Forman Corporation and the Prospectus Supplement dated June 30, 2016 issued by Omega Healthcare Investors, Inc.). Such risk factors in prospectuses may be appropriate if an issuer considers its business likely to be adversely affected by Brexit. Some issuers may also wish to "flag" the market volatility implications of Brexit. At this stage, however, any such disclosure will necessarily be quite high level given the inherent uncertainties around how Brexit will in fact play out and its appropriateness will need to be carefully considered on a case-by-case basis.

4. Eurobond documentation

It is unlikely that the market disruption following the vote to leave requires market standard force majeure clauses in bond documentation (i.e. the ICMA standard form force majeure clause) to be triggered. However, for bespoke force majeure clauses (which are often found in private placements, equity linked and other "non-vanilla" deals), this will of course depend on the specific transaction and the drafting of the clause.

It is also unlikely that the market disruption following Brexit will be considered severe enough to trigger a breach of market standard material adverse change (MAC) representations or MAC termination rights in bond documentation. Any bespoke material adverse change clauses will of course need to be specifically drafted and analysed.

It also remains unlikely that Brexit will, in itself, trigger an event of default on the grounds of illegality as, from a legal perspective, nothing has immediately changed following the vote to leave. The UK remains a member of the EU and EU laws continue to apply until the UK formally leaves the EU.

Market participants should take comfort from the fact that Brexit will not result in material changes to the English common law principles on which English law governed DCM transaction documentation is based. While future changes to the regulatory landscape are difficult to predict, it is unlikely that Brexit will affect the enforceability of an English law governed contract.

Brexit does, however, raise a number of issues in the context of cross-border transactions such as, whether the courts of other EU Member States would continue to (i) respect a choice of English law as the governing law of a contract, (ii) respect a choice of English courts to settle any disputes and (iii) recognise and enforce English judgments following the UK departure from the EU.

5. Supplemental prospectuses

The mere occurrence of Brexit, of itself, does not trigger the need for an immediate prospectus supplement. This of course depends on the specific circumstances of the relevant transaction and issuer, but Brexit itself is unlikely to be considered a "significant new factor" for Prospectus Directive purposes.

6. Credit ratings

The UK's credit rating by S&P was downgraded from "AAA" to "AA" and the rating agency has warned of possible further downgrades.3 While, at this time, the country's downgrade does not directly impact on corporate issuers, particularly investment grade issuers, there is general concern about how this downgrade will impact on sovereign entity-linked issuers or transactions linked to the ratings of the UK.

7. Capital Markets Union

The Capital Markets Union ('CMU') is part of the EC's efforts to harmonise the European capital markets to, among other things, enable issuers to gain access to funding from a range of investors. The UK was one of the main drivers behind the implementation of the CMU and it is uncertain whether this proposal will continue and in what guise.

Whilst the proposals relating to the Prospectus Regulation will continue moving forward following Brexit, it is highly likely that the UK will step back from negotiations relating to CMU.

"Us and them" – implications for the rest of the EU

According to the International Capital Markets Association's Quarterly Assessment dated 12 July 2016, there are also a number of questions related to Brexit's impact on the EU with implications for the capital markets:

  • whether new EU regulations after Brexit would in future be as favourable to international capital markets as at present: while the UK can influence the outcome of negotiations on new EU regulations at present, after Brexit they would be negotiated by the remaining 27 Member States without any UK influence;
  • whether the euro-area authorities would take steps to encourage more euro business to be conducted within the euro area; and especially euro clearing
  • if so, whether they would be able to agree on a single financial centre for the euro within the euro area and where it would be (e.g. Frankfurt, Paris, Luxembourg or Dublin).4

Quo Vadimus – so where do we go from here?

There will be an extended period of uncertainty and financial market volatility post Brexit. However, Brexit would not trigger concerns about sovereign insolvency, redenomination of debts, or the introduction of capital or exchange controls. As a result, the short to medium term impact of Brexit on existing and new transactions is likely to be limited from a legal perspective, although the associated uncertainty and volatility has lead, and will continue to lead, some businesses to put activity on hold for a period. In the longer term, the impact of Brexit from a regulatory perspective is unclear, but any changes could have significant consequences for debt capital market transactions if the UK's ability to access the single market for financial services is not preserved.

This is a first in a series of articles which will focus on specific developments relevant for debt capital market participants. If there are any queries in the meantime on specific issues, please do not hesitate to contact us.


1 The EU has two Treaties: the Treaty on European Union and the Treaty on the Functioning of the European Union. If and when the UK withdraws from the EU, the Treaties would no longer apply to the UK, and the UK would no longer participate in the EU institutions, such as the European Commission, European Council, Council of Ministers, European Parliament, European Court of Justice and the EIB.

2 ICMA article by Paul Richards – 'The UK vote to leave the EU: implications for capital market regulation'.

3 Standard and Poors press release on 27 June 2016

4 ICMA Quarterly Assessment by Paul Richards – 'The UK vote to leave the EU: implications for capital market regulation' dated 12 July 2016

Client Alert 2016-246

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.