This guide is designed to assist Swiss and international companies planning to issue bonds on the Swiss market (or on the EUR-market by Swiss issuers) with the legal and regulatory considerations involved. It is particularly valuable for first-time or infrequent issuers of straight bonds, while also serving as a practical reference for frequent issuers. The guide provides an overview of the rights and obligations of issuers of bonds from a Swiss law perspective and examines the relationship between issuers and bondholders. It does not purport to be complete, but is intended to serve as an overview.
1 WHAT IS A BOND?
Swiss law does not provide a definition of a bond (except in the context of taxation, see below). The Swiss federal supreme court and the literature define bonds (Anleihen or Obligationenanleihen; emprunts) as loans that are divided into equal tranches with fungible terms (such as interest rate and term) and based on the same legal basis. Legally, the issuer concludes an identical agreement with a large number of investors, each based on the so-called "terms and conditions of a bond" (Anleihebedingungen). Bonds structured in such a way are easily transferable and qualify as "securities" under Swiss financial market laws. A characteristic feature of bonds (Anleihe) is the split into several individual instruments (Anleihensobligationen), which have the same denomination and may be transferred individually and independently of each other.
The qualification of a bond is particularly relevant because Swiss law provides a different set of legal consequences for bonds compared to loans despite the absence of a definition of bonds under Swiss law. Bonds are regulated mainly in three different areas of Swiss law:
- The Swiss Code of Obligations (the "CO") imposes specific duties on issuers having their registered seat or place of business (Geschäftsniederlassung) in Switzerland, which have issued bonds by way of public offering. In particular, it governs bondholder meetings and sets limits on what an issuer may agree with bondholders from a contractual point of view.
- The Swiss Financial Services Act (the "FinSA") regulates the public issuance and the admission to trading of bonds as well as the content of Swiss bond prospectuses.
- Swiss tax law imposes different tax consequences for bonds than for loans. Under Swiss tax law, loans are subject to the so-called "10/20 non-bank rule". In order that interest payments by a Swiss borrower of loans are not subject to Swiss withholding tax, the borrower must not have more than 10 non-bank lenders under one loan and 20 non-bank lenders under all outstanding loans of at least CHF 500,000 of that borrower. It is worth noting that the tax definition of bonds is different from what practitioners would usually qualify as bonds under Swiss securities laws (cf. section 7 for more details).
Separately, Swiss issuers of bonds qualify as public companies from an accounting perspective, irrespective of whether the instruments are listed or not. Hence, such companies are subject to enhanced auditing requirements (cf. section 5.1).
2 BOND ISSUANCE AND PLACEMENT
2.1 Swiss vs. Foreign Issuers
Swiss securities laws generally do not distinguish between Swiss issuers and foreign issuers. Hence, if a foreign issuer conducts an offering in Switzerland, it is – as a matter of principle – subject to the same set of rules.
However, when it comes to the ongoing issuer obligations of the CO, these are only applicable to Swiss issuers. The same applies to Swiss issuers regarding the rules on bondholder meetings (applicable, for example in case of a restructuring); however, this regime has recently been eased by allowing bonds of Swiss issuers being at least partially publicly issued outside of Switzerland to opt for a different, i.e., foreign, law governing such matters (cf. section 4.2).
Often, the main reason for choosing a nonSwiss issuer for Swiss corporations is tax driven: Provided that certain criteria are met, interest payments on bonds by foreign issuers are not subject to Swiss withholding tax, which is key for non-Swiss investors. Hence, many Swiss corporations choose to issue bonds through a foreign subsidiary with a guarantee from the Swiss parent company for placements of bonds with international investors (cf. section 7 regarding taxation).
2.2 Public Offering vs. Private Placement in Switzerland
As a general rule, a public offering triggers the duty to publish a prospectus approved by a regulatory authority (prospectus office) absent any exemptions. Swiss law defines a "public offering" as an offering to the public. An offering to the public is deemed an offering to an unlimited number of people. While this definition leaves questions open when applied in practice, it is generally acknowledged among practitioners that the decisive criterion for the differentiation between a public offering and a private placement is rather of qualitative than of quantitative nature (i.e., how investors are approached). In practice, the question is often what exemption is available in order to have a water-proof solution if no prospectus is published at launch. Quite often, however, a prospectus is available at launch. In such cases, the question becomes obsolete. For further details on prospectus requirements, please refer to section 3.1 below.
2.3 Listing and Admission to Trading
Bond issuers often seek to list their bonds to facilitate trading for bondholders. Typically, CHF-denominated bonds are listed on SIX Swiss Exchange, while EUR-denominated bonds have historically been listed on EU venues. However, recently, Swiss issuers have increasingly chosen SIX Swiss Exchange for their EUR bonds due to the streamlined offering and listing regime provided by Swiss law and SIX, respectively, compared to the EU.
The admission to trading on a Swiss trading venue of bonds also requires the publication of a prospectus under Swiss law. In contrast to a public offering, there are no exemptions readily available for the admission to trading of a new instrument as a general rule.
SIX offers a lean and quick way to list bonds: Assuming that an issuer is not a new issuer, issuers may apply through a recognized representative for the provisional admission to trading three trading days prior to the intended first day of trading through an online tool. The formal listing application has to be submitted within two months after the first day of trading. New issuers must file an additional request in advance (cf. section 6.1.1).
3 PROSPECTUS
3.1 Prospectus Requirements
The Swiss prospectus requirements are governed by the FinSA and its implementing ordinance, the Financial Services Ordinance (the "FinSO"). Swiss law requires in principle the publication of a prospectus in cases of (i) a public offering in Switzerland or (ii) an admission to trading on a Swiss listing venue, such as SIX Swiss Exchange. The FinSA provides for some exemptions to publish a prospectus, among others, if the public offering is made to less than 500 investors (retail or others), if the public offering is directed to professional investors (professional clients in the sense of art. 4(3) FinSA) only or if the denomination is at least CHF 100,000. There are further exemptions available for certain securities or for the admission to trading, which are less relevant in the present context.
FinSA requires a prospectus to be approved by a Swiss review body (prospectus office; Prüfstelle). Both Swiss exchanges, SIX Swiss Exchange and BX Swiss established a review body. While for equity securities, the prospectus must be approved by a Swiss prospectus office prior to its publication, FinSA allows issuers of certain debt instruments, such as straight bonds, to seek approval only after the publication of the prospectus (so-called ex post approval) provided that a Swiss bank or a Swiss securities dealer confirms that all important information on the issuer and the securities were available at the time of publication. As a result, a Swiss bank is typically involved in a Swiss public offering of bonds in order that the issuer may benefit from a more flexible timing because neither the prospectus approval nor the approval for listing has to be in place at launch.
If a bond is offered by way of a private placement, but afterwards listed on SIX Swiss Exchange, a prospectus is required for the admission to trading. Typically, the prospectus is also prepared for the offering in such cases to mitigate prospectus liability by ensuring that investors purchasing the bonds have all relevant information beforehand and may not claim after the publication of the prospectus that they did not have all relevant information. The listing, however, does not need to be made immediately after the placement; it may also occur at a later stage (depending on the undertaking in the terms and conditions of the bonds), in which case the prospectus will be published in connection with the listing.
3.2 Form of a Prospectus
While most issuers choose to publish a standalone prospectus for an issuance of bonds, issuers have different options available: In case of a programme for bonds, issuers may publish the terms of the new issued bonds by the publication of terms only provided that the base prospectus is up to date. In order to keep the base prospectus up to date, the issuer may (and must) publish supplements to the base prospectus.
As incorporation of reference is permitted, issuers regularly refer to the financial statements to be included in the prospectus by making reference to the path on their website where these financial statements may be found. If not only the financial statements, but the entire annual report is incorporated by reference, attention should be given to the entire content of the annual report as all information in there will be deemed part of the prospectus and is subject to prospectus liability, which is typically not desirable. In the international context, it is standard to incorporate by reference only the financial statements.
3.3 Prospectus Liability
The FinSA provides for a civil liability for all persons, who are materially involved in the drafting of the prospectus and thereby provide false, misleading information or information in violation of statutory requirements, while failing to exercise due care. Such persons are liable to the acquirer of the relevant securities for the loss, which such person incurred. It is important to note that the liability does not only apply to prospectuses, but extends to similar communications, such as investor presentations or other documents relating to the offering.
The civil liability eases the liability for (i) summaries, in which case the liability is limited to information, which is misleading, inaccurate or inconsistent when reading together with the remaining parts of the prospectus, and (ii) prospects, where a person may only be held liable if the relevant misleading or non-compliant information is provided or omitted knowingly (wider besseres Wissen) or without reference to the uncertainty to the future developments.
FinSA also establishes a criminal liability: A fine up to CHF 500,000 may be imposed on any person, who intentionally provides false information or omits important information in a prospectus or fails to publish a prospectus at the beginning of the public offering.
3.4 Alignment of Investor Presentation with Prospectus
Often, issuers and the involved syndicate banks do not use the prospectus as their primary marketing tool. Instead, the issuer presents at an investor meeting or provides an investor deck together with the prospectus to investors. The investor presentation summarizes the business of the issuer in a more digestible format. It is worth highlighting that an investor deck is subject to prospectus liability as well. Further, as the prospectus is the only document, which is supposed to serve as a basis for the investment decision, issuers must ensure that the content of the presentation is aligned with the content in the prospectus and that all material information of the investor presentation is reflected in the prospectus.
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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.
