Standardisation of procedure to be followed by Debenture Trustee(s) in case of ‘Default’ by Issuers of listed debt securities

SEBI/HO/MIRSD/CRADT/CIR/P/2020/203 · 2020-10-13 · SEBI Market Intermediaries Regulation & Supervision Department

Summary

This circular standardizes the procedures for Debenture Trustees to follow when issuers of listed debt securities default. It defines 'default' at the ISIN level and mandates specific steps for obtaining investor consent regarding security enforcement and Inter-Creditor Agreements. The document outlines conditions under which trustees may sign such agreements and exit mechanisms if terms are violated or timelines are exceeded.

Text

This circular prescribes the process to be followed by the Debenture Trustee(s) in case of ‘Default’ by issuers of listed debt securities including seeking consent from the investors for enforcement of security and/or entering into an Inter-Creditor Agreement (“ICA”)

Regulation 51 read with the Explanation to Clause A (11) in Part B of Schedule III of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements), 2015 (“LODR Regulations”) defines ‘default’ as non-payment of interest or principal amount in full on the pre-agreed date which shall be recognized at the first instance of delay in the servicing of any interest or principal on debt

‘event of default’ shall be reckoned at the ISIN level, as all terms and conditions of issuance of security are same under a single ISIN even though it might have been issued under multiple IMs

In terms thereof, investors in debt securities, being financial creditors, are approached by other lenders to sign an agreement, referred to as the Inter Creditor Agreement (“ICA”), under specific terms detailed in the framework as stipulated by RBI

Regulation 59 of LODR Regulations provides that material modification in the structure of debt securities shall be made only after obtaining the consent of the requisite majority of investors... Regulation 18 of the ... ILDS Regulations ... stipulates a period of fifteen days for giving notice ... and further provides for approval to be obtained from not less than 75% of the holders by value

The Debenture Trustee(s) shall send a notice to the investors within 3 days of the event of default by registered post/acknowledgement due or speed post/acknowledgement due or courier or hand delivery with proof of delivery as also through email ... and proof of dispatch of such notice or email, shall be maintained

The notice shall contain the following: negative consent for proceeding with the enforcement of security; positive consent for signing the ICA; the time period within which the consent needs to be provided, viz. consent to be given within 15 days from the date of notice; and the date of meeting to be convened

Debenture Trustee(s) shall convene the meeting of all investors within 30 days of the event of default ... Provided that in case the default is cured between the date of notice and the date of meeting, then the convening of such a meeting may be dispensed with

in case of debt securities issued by way of public issue, the notice sent by the Debenture Trustee(s) in para 6.2 shall not contain the consent as per para 6.2.1 and the requirement to convene a meeting for enforcement of security, as per para 6.3, shall not be applicable

In case(s) where the majority of investors expressed their dissent against enforcement of the security, the Debenture Trustee(s) shall not enforce security

In case(s) where majority of investors expressed their consent to enter into ICA, the Debenture Trustee(s) shall enter into the ICA

The Debenture Trustee(s) may form a representative committee of the investors to participate in the ICA or to enforce the security or as may be decided in the meeting

Source: SecMarx — Standardisation of procedure to be followed by Debenture Trustee(s) in case of ‘Default’ by Issuers of listed debt securities. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.