French reform of certain short and medium term negotiable debt securities rules
The French Government intends to simplify the regime and internationalise the TCN market in order to make it more attractive, especially to international issuers.
Within the framework of the "Place de Paris 2020" committee set up by the Ministry of Finance in June 2014, the French Government has presented a draft decree and a draft ministerial order reforming the legal regime of certain short and medium term negotiable debt securities, ie the titres de créances négociables (TCNs). These drafts were examined on 14 April 2016 by the French Consultative Committee of Financial Legislation and Regulation (CCLRF).
The contemplated reform focuses on the following key points:
Simplification of the categories of TCNs and unification of the legal regime
The existing categories of TCNs will be grouped into two categories: on the one hand, the short-term TCNs (titres négociables à court terme) with a maturity of up to a year will gather the current certificats de dépôt and billets de trésorerie and, on the other hand, the mid-term TCNs (titres négociables à moyen terme) with a maturity of more than a year will include the current bons à moyen terme négociables (BMTNs). Moreover, the current TCN regime contains certain provisions which vary depending on the type of issuer, while the reform aims at unifying the rules with one single regime applicable to all issuers.
Eligible issuers
(A) Extension to non EEA issuers of the exemption to the rating requirement
Some issuers already benefit from the exemption to the requirement to have their TCN programme rated. The exemption currently applies to credit institutions and investment firms established in the European Economic Area (EEA), the Caisse des dépôts et consignations and issuers of securities admitted to trading on a regulated market in the EEA.
This exemption will be extended to issuers of securities admitted to trading on a market outside the EEA provided that such market be recognised as equivalent by the European Commission. This could therefore enhance the ability of issuers established outside the EEA to have access to the TCN market. It should be noted however that the draft decree does not refer to the relevant provisions (if any) relating to the recognition of a non-EEA market as equivalent for the purposes benefiting from of this exemption.
(B) Easing of the requirements for regulated entities
The requirements applicable to credit institutions, investment firms and financing companies wishing to issue TCNs will be reduced to a single requirement, ie a minimum capital requirement of €2.2m (or its equivalent in another currency).
A simplified financial documentation
The following changes would be introduced by the draft decree:
(A) the existing distinction between the "financial presentation" and the "financial documentation" would be removed, so that only the financial documentation would remain, containing a presentation of the issuance programme(s), a presentation of the legal and financial situation of the issuer, certain accounting documents and a certificate from the person(s) in charge of the financial documentation
(B) the accounting data could be incorporated by reference
(C) the draft decree provides further details in respect of the accounting standards which are eligible for producing the relevant accounting data (especially regarding non-EEA issuers), and
(D) the contents of the above mentioned certificate is made more comprehensive.
The update of the programme will still have to take place on an annual basis, as well as upon the occurrence of certain events. The draft decree mainly repeats the update events existing under the current regime, and adds one additional event, ie the obligation to update the programme in the event of change of identity of any rating agency having granted a rating to the programme (provided that such rating was legally required).
Softening of the information requirements
Certain information requirements will be reduced:
(A) indexation provisions on rates other than standard rates of the interbank market will still have to be disclosed to the Banque de France, but such disclosure will no longer be required before the issuance, and
(B) issuers will no longer have to disclose, upon the issuance of the relevant TCNs, the relevant annual interest yield (taux de rendement actuariel annuel).
Easing of certain time limits
The existing requirement for the issuers to give to the Banque de France no less than two weeks notice prior to a first issuance of TCNs (by sending the financial documentation) is removed and replaced with an obligation to send such financial documentation to the Banque de France within a period to be determined by the Banque de France itself.
Greater emphasis on the international development
One of the main goals of this reform is to allow a larger number of issuers to gain access to the TCN market (especially for the benefit of non EEA issuers), not only by broadening the above mentioned exemption to the rating requirement, but also by introducing the following measures:
(A) The financial documentation could be drafted entirely in English without any requirement to add a French language summary, provided that (i) the TCNs are subscribed or purchased for an amount at least equal to €200,000 and (ii) the issuer includes a warning in French suggesting to investors that they obtain a translation in French of the financial documentation
(B) The draft ministerial order specifies that if the issuer contemplates issuing TCNs in currencies other than Euro, it will no longer have to specify such currencies in its programme, but will only have to specify that issues may be denominated in "other currencies", and
(C) The current requirement applicable to issuers of BMTNs to specify in their programme documentation the name of at least one institution established in France in charge of communicating to the Banque de France the relevant information on the evolution of the market pertaining to its securities will be removed; this obligation will be replaced by an obligation, in respect of all types of TCNs, to communicate the name of at least one domiciliation agent (domiciliataire) in charge of such communication, without any obligation for such agent to be established in France.
These draft decree and ministerial order, once finalised, would enable to streamline and modernize the legal regime applicable to TCNs, aiming at attracting more foreign issuers on the Paris market. Regarding the timing of this reform, these drafts could be adopted around the end of May 2016.
