Corporate Fixed Income – Investment Association Special Committee

Bondholders, by industry convention, collaborate on consent solicitations. So, when bondholder committees are formed through a trade association, being, the Investment Association (the  IA) , we typically seek to be a collaborative participant. Collaboration can be an efficient way to develop our understanding of the consent being sought and to manage the timing, cost, and voting threshold problems issuers face.

Participating through the IA helps manage risks associated with collaborations, such as competition concerns.

The issue

During the latter part of 2024, an issuer approached the IA regarding a proposal to redeem their bonds early.

The issuer, which was considered a credit with both a strong financial profile and business, had over recent years undergone significant restructuring. As a consequence, it no longer required sterling-denominated debt as it no longer had a UK based business.

The issuer therefore wanted to retire this part of its debt. While the contractual documentation provided a mechanism for the issuer to repay the debt, the issuer wanted consent from the bondholders to deviate from these terms to reflect that the market value of its debt was below its face value.

A special committee (the IA Special Committee) was formed and included CLAM alongside several other institutional investors.

Activity

The issuer presented their proposal to the IA Special Committee, which explained the amendments that the issuer was seeking and the rationale for the redemption.

Working with the IA Special Committee members and the issuer, we were involved in reviewing the transaction rationale and the pricing of the proposed offer to bondholders. The rationale and the transaction were relatively straightforward, with broad support from the IA Special Committee.

However, the IA Special Committee was concerned around the proposed timing of the transaction, which was planned for December 2024 - a period of low liquidity in the market. The timing would reduce the ability of bondholders to find appropriate investments in which to reinvest the proceeds at similar or better pricing. This could potentially lead to bondholders being disadvantaged by giving their consent and participating in the transaction.

The IA Special Committee recommended that adjustments were to be made to the financial compensation offered to bondholders with the objective of reducing any disadvantage to participating bondholders.

Outcome

The issuer was grateful for the engagement from the IA Special Committee and improved the proposed offer to all bondholders. The revised offer was quickly reviewed and accepted by all IA Special Committee members. The bondholders later voted in favour of the IA Special Committee recommendation.

The agreed solution presented a pragmatic outcome for bondholders who were able to sell the bonds at above the market price and reinvest the proceeds to achieve, at the least, the same risk-return profile. It was also a pragmatic outcome for the issuer, who wanted to avoid servicing unnecessary debt.

The case study demonstrates the consensual approach we take when working with other investors and how we work to find pragmatic solutions as we seek to protect client and other stakeholder value and deliver stable risk-adjusted returns.