Capital Markets Insight: Reverse Yankees - Financial Services

INSIGHT: REVERSE YANKEES

In this briefing, we take a look at the basics of "Reverse Yankees" – offshore debt issuances by US issuers in a currency other than US dollars – when and why they might be an attractive funding choice and the documentary options for coming to market. If you would like to know more, please talk to any of your Mayer Brown contacts.

WHAT IS A REVERSE YANKEE?

A bond issued by a US issuer outside of the US and denominated in a currency other than US dollars (typically, euro or sterling).
Issuers tend to be, but are not exclusively, higher rated credits.
The market is large and has grown over the past 10 years, albeit not always consistently.
In the euro corporate market, US borrowers accounted for €52bn of issuance in 2021 or just over 17% of overall supply (Source: IFR).

WHY ISSUE A REVERSE YANKEE?

When interest rates in the non-US currency markets are low, US issuers may be able to issue debt with lower coupons than they would otherwise be able to in the domestic US market. It can be particularly cost effective when the costs of swapping the local currency back to USD are low.
To fund the local currency operations of non-US subsidiaries.
An opportunity for US issuers to diversify their funding sources and investor base.
An opportunity for non-US investors to gain access to US names without taking the currency risk of investing in US dollar debt.
In certain circumstances, debt issued by US issuers (or their subsidiaries) can be made "eurosystem eligible" with the European Central Bank (ECB). This can be attractive for investors intending to use the debt as collateral with the ECB and can qualify the debt for ECB bond buying programmes such as the Corporate Sector Purchase Programme (CSPP).

WHAT ARE THE DOCUMENTARY OPTIONS?

Broadly speaking, there are three main routes to market. For those US issuers with US SEC shelf registration documentation, that documentation can often be adapted to permit the offering, issuance and settlement of securities outside the US. Alternatively, US issuers can set up either a Euro style medium term note programme or standalone Eurobond documentation for the purpose of issuing. Our table overleaf compares these options.

	Adapted US Shelf Registration Documentation	Euro Style Standalone	Euro Style Programme
Offering Documentation	Prospectus Supplement to existing US shelf incorporating the relevant amendments for EU/UK market.	Standalone euro-style Prospectus/ Offering Circular	Euro style programme Base Prospectus/ Offering Circular. Potentially a Supplemental Prospectus/Offering Circular to add any disclosure required between programme signing date and a drawdown.
Main Contractual Documents	Underwriting Agreement plus Supplemental Indenture and Agency Agreement.	Subscription Agreement plus Trust Deed/ Agency Agreement and Deed of Covenant.	For the Programme, Dealer Agreement plus Trust Deed/Agency Agreement and Deed of Covenant. For the issuance, Final Terms/Pricing Supplement/Drawdown Prospectus plus Subscription Agreement/Dealer Confirmation.
Governing Law	New York Law	Usually English or New York Law	Usually English or New York Law.
Due Diligence	Due diligence sufficient to permit issuer's and underwriter's counsel to deliver a negative assurance (10b-5) letter.	Reg S Only: Management due diligence only and no requirement for the delivery of negative assurance (10b-5) letters. Reg S/Rule 144A: Due diligence sufficient to permit issuer's and underwriter's counsel to deliver a negative assurance (10b-5) letter.	Same as Euro Style Standalone. Due diligence will typically occur on establishment, update and each drawdown.

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Originally Published by 17 March 2023

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