The London Stock Exchange’s ORB: Materials from the Retail Bond Issuance Forum
In this February 2011 post we summarised the key features of the London Stock Exchange’s Order book for Retail Bonds (ORB), which in the words of the Exchange “provides corporate debt issuers with direct access to retail investors through a cost effective and transparent electronic market”. This first serious attempt to launch a UK retail bond market has seen some success in 2011, with eight companies raising £1.22 billion.
In November 2011 the Exchange and Evolution Securities held a Retail Bond Issuance Forum, to encourage interest from corporate issuers in having their debt traded on the ORB. A comprehensive presentation by Evolution Securities on the UK Retail Bond Market can be accessed here, and the Exchange’s own overview of the ORB is here.
Key themes from the Retail Bond Issuance Forum
Two of the themes that emerged from this Retail Bond Issuance Forum were the appetite of retail investors for bonds issued not just by companies but also by universities, charities and housing associations; and that issuers were not put off by having to produce a retail prospectus. The other key themes of the Forum are summarised in a note on the Exchange’s website, as follows:
“• New investor base – A retail targeted bond issue allows borrowers to access a new source of medium term funding, typically 5-10 years, without the amortisation and onerous covenants typically associated with bank facilities. It provides borrowers with the opportunity to raise debt from the bond market in modest amounts, and can be both complimentary and an alternative to bank debt….
• Issue size – The ORB market offers flexibility with issue sizes ranging from £25-250 million. Once an issuer has established themselves within the market they can issue at regular intervals tailoring issue sizes dependent on their demand.
• Inflation linked bonds – There was substantial interest in different types of structures of these types of products and how they worked and the benefit to issuers who have RPI linked revenue.
• Demand for new sectors – the potential private investor appetite for bonds issued by universities, charities and housing associations was seen as an interesting development for the ORB market. It was widely expected that issuers from different sectors, both commercial and not-for-profit, would look to issue retail bonds, offering private investors further diversity.
• Retail Prospectus – concerns surrounding the additional disclosure and transparency requirements for retail prospectus documentation were addressed, in general it was found that the additional obligations were minimal and were unlikely to deter issuers from accessing the retail market.
• Timescales –Transaction times vary on a case to case basis however a first time retail bond can be structured and listed in as little as 6-8 weeks.
• Marketing and PR – The retail bond in nature is a much more public offering than a wholesale issue. The majority of bonds listed have been supported by a PR campaign and advertisements in order to promote the issuance. The ORB market has benefited from considerable organic press and can be an effective way to raise the profile of a particular firm.
• SME bonds on ORB – The suitability and the accessibility of the ORB market for smaller and medium size companies was discussed.”
The growing popularity of the ORB amongst both issuers and retail investors will be of interest to the Government-backed taskforce on diversifying business finance.
Friendly Corporate PSL
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