1.A. The corporate governance framework should ensure that timely and accurate disclosure is made on all material matters regarding the listed bonds of issuers, which may include the financial situation and operating results, performance, company objectives, related party transactions, controls to fulfil covenants, foreseeable risk factors, debt contracts, and governance of the company.
Principles IV and IV.A of the Principles should be applied mutatis mutandis to issuers of listed bonds, considering what is material for bondholders. Notably, there may be some circumstances where information may be material for bondholders but less critical for shareholders. For instance, bondholders may take particular interest in events that could potentially affect the value of the collateral used to secure the debt, the breach of contractual terms that would require the issuer to repay the amount outstanding, a change in the use of proceeds from what was initially defined in the bond contract, or the issuer’s exposure to interest rate and liquidity risks. Conversely, certain categories of information that may be material for shareholders are of more limited relevance to bondholders. For instance, disclosure on major share ownership and voting rights—while often important for equity investors—may generally be deprioritised by issuers when assessing materiality in the context of listed bonds.
Material information can be defined as information whose omission or misstatement can reasonably be expected to influence a shareholder’s or bondholder’s assessment of a company’s cashflows, including their value, timing and certainty. Material information can also be defined as information that a reasonable investor would consider important in making an investment or voting decision. In structures where listed bonds are guaranteed by a parent company and the subsidiary issuing the bond has no standalone operations, the assessment of materiality may primarily be made at the guarantor (group) level.
1.B. The corporate governance framework should ensure that timely and accurate disclosure is made regarding material information on debt contracts, including the risk of non-compliance with covenants, as well as the consequences of, and conditions attached to, any material covenant breach.
Under normal circumstances, shareholders and directors control the major decisions taken by a company. However, certain provisions in corporate bonds and other debt contracts may significantly limit the discretion of management and shareholders, such as covenants that restrict dividend payouts, that require bondholders’ approval for the divestment of major assets or penalise bond issuers if financial leverage exceeds a predetermined threshold. Moreover, under financial stress but before bankruptcy, companies may choose to negotiate a waiver of compliance with a covenant, which may involve changes to strategy and asset allocation. As a consequence, the timely disclosure of material information on debt contracts, including covenant breaches, events of default, and other material developments affecting covenant compliance is necessary for investors to understand a company’s business risks. Where relevant under applicable accounting standards and the terms of the bonds, disclosure may also extend to forward-looking information.
Similarly, where bonds include contractual features that may alter their economic characteristics upon the occurrence of specified events, issuance documentation should clearly state the relevant triggers and their consequences. Contingent convertible bonds issued by financial institutions may qualify as regulatory capital and can be converted into equity or subject to a principal write-down when a trigger event occurs. Clarity with respect to trigger events and their consequences, therefore, is relevant not only for the holders of contingent convertible bonds but, more broadly, for financial markets’ stability.
1.C. Information should be prepared and disclosed in accordance with internationally recognised accounting and disclosure standards.
Consistent with Principle IV.B. of the Principles, the use of high-quality accounting and disclosure standards is expected to significantly improve investors' ability to monitor a company by providing increased relevance, reliability and comparability of reporting, and improved insight into a company’s performance and risks. Typically, issuers of listed bonds need to prepare and disclose information in accordance with the same accounting and disclosure standards used by listed companies in the same jurisdiction. In some jurisdictions, foreign companies can disclose information using foreign accounting standards if they are deemed to be equivalent to domestically-accepted accounting standards, which may facilitate cross-border investments.
1.D. An annual external audit should be conducted by an independent, competent and qualified auditor in accordance with internationally recognised auditing, ethical and independence standards in order to provide reasonable assurance to the board, shareholders and bondholders on whether the financial statements are prepared, in all material respects, in accordance with an applicable financial reporting framework.
Consistent with Principle IV.C. of the Principles, the external auditor provides an opinion as to whether the financial statements present fairly, in all material respects, the financial position and financial performance of a company. In addition to what is in the Principles, the recommendation above highlights that not only shareholders but also bondholders are among the main users of financial statements.
1.E. External auditors owe a duty to the company to exercise due professional care in the conduct of the audit in the public interest.
Consistent with Principle IV.D of the Principles, the external auditor owes a duty of professional care to the company rather than any individual or group of corporate managers that they may interact with for the purpose of their work. The practice that external auditors are recommended by an independent audit committee of the board or an equivalent body and are elected, appointed or approved either by that body or by the shareholders’ meeting directly, does not preclude bond trustees from communicating directly with the audit committee or an equivalent body regarding non-confidential matters related to its oversight of the external auditor.
The communication with trustees may be particularly valuable in circumstances involving covenant compliance concerns, or potential default events, where timely communication between the auditor, the audit committee, and the trustees can support the prompt identification and disclosure of material issues affecting bondholders. The audit committee and, where relevant, the external auditor may also give appropriate attention to financial reporting matters of relevance to bondholders, such as accounting judgments that affect covenant calculations and the use of non-standard measures referenced in bond contracts, including adjusted EBITDA (Earnings before Interest, Tax, Depreciation and Amortisation).
1.F. Channels for disseminating information should provide for equal, timely and cost-efficient access to relevant information by bondholders and parties acting on their behalf.
Consistent with Principle IV.E. of the Principles, there should be requirements for ongoing disclosure to holders of listed bonds and bond trustees, which includes periodic disclosure and continuous or current disclosure that is provided on an ad hoc basis. This should be provided in an easily accessible and user-friendly manner. Where possible, information relevant to bondholders should be disclosed through centralised and standardised channels, such as regulated market disclosure systems, or the issuer’s investor relations website. To facilitate comparisons across companies, issuers may also consider aligning their reporting timelines with widely accepted reporting schedules used by listed companies in the same jurisdiction.
1.G. The disclosure framework may need to be flexible depending on the specific company circumstances and the investors who can acquire its bonds.
Issuers of listed bonds may be required to comply with disclosure requirements such as those followed by listed companies. Generally, when a company publicly offers securities, including bonds, it must provide a disclosure document to potential investors. This document often must be filed with the regulatory authority. Exemptions to some disclosure requirements are often conditioned to the number and type of eligible investors in the public offering; for instance, the smaller the number or the higher the sophistication of investors, the more exemptions would apply. Still, when the bonds were initially offered to more sophisticated investors, securities intermediaries may be obliged to assess whether the issuer complies with ongoing disclosure requirements that consider the needs of the less sophisticated investors before allowing them to acquire the bonds.
Disclosure requirements should also consider the issuer’s size, complexity, ownership structure, stage of development, and the characteristics of the bond issuance, including its size and tenor. While considering the need to protect investors, some jurisdictions offer regulatory flexibility for recurrent listed bond issuers or for smaller companies with growth potential to simplify the bond issuance process. This can be achieved by allowing recurrent bond issuers to follow simplified procedures and/or issue a simplified prospectus. Exemptions in the listed bond issuance process could also be considered, such as waiving or decreasing the number of historical financial statements for newly established corporations or permitting their use of a simplified prospectus.