Euro PP Charter
Industry Guidance Document
Introduction
This "Euro PP Charter" summarises the cross-market work carried out by various actors (borrowers, investors, arrangers and other stakeholders), to produce a non-binding framework of best practices to raise the Euro PP (Euro Private Placement) as a benchmark market for companies' financing in Europe.

Drafted in its first version in February 2014, the Euro PP Charter was updated in October 2019 in order to take into account market developments and to strengthen its efficiency. The Euro PP Charter remains an evolving document and may be subject to further modifications.

This document, which is intended for educational purposes, does not constitute a contractual documentation. In particular, attention is drawn to the importance for each party to negotiate the contractual terms, which vary according to the type of transaction, the Borrower's situation and market conditions.

This Euro PP Charter is designed to be adapted and supplemented as circumstances evolve.

Download the Euro PP Charter

Contents
A. Issues and Objectives
B. Definition, characteristics and execution period
C. Parties, documentation and recommendations

Appendices:
- Appendix 1: Borrower Presentation File template
- Appendix 2: Form of Non-Disclosure Agreement
- Appendix 3: List of "Know your customer" (KYC) documents
- Appendix 4: ESG Borrower Questionnaire
- Appendix 5: Indicative Marketing Term sheet
- Appendix 6: Sample Subscription Agreement and Bond Terms and Conditions (bond format)
- Appendix 7: Sample Loan Agreement (loan format)


A. Issues and objectives
 
A.1       Euro PP Market Issues
 
Providing financing for companies - Capital markets and banks provide a significant share of corporate financing. In addition, the Euro PP allows listed and unlisted companies to diversify their sources of financing from Investors with whom long and lasting relationships can be established.
 
Initially intended for mid-cap companies, the Euro PP has been extended to companies of all sizes. Such a widening of the market is welcome as long as (i) companies have the size, financial strength and ability to manage this type of financing and (ii) investors create the means to measure and monitor the risks related to this activity.
 
Since it does not require a public announcement at the time of its implementation, the Euro PP allows the Borrower to exchange with the Arrangers and Investors in complete confidentiality.
 
Meeting investors' needs - The Euro PP offers an investment framework that serves as a reference for investors to achieve their risk diversification and financial return objectives, in compliance with their prudential and regulatory requirements and investment criteria.
 
A.2       The objectives of the Euro PP Charter
 
Determining a specific execution framework - The Euro PP Charter promotes best practices in international credit markets and, where possible, self-regulation and adoption of industry practices. It proposes a common working basis for Borrowers, Arrangers and Investors to adequately meet their respective needs.
 
The Euro PP Charter aims at improving access to credit for companies, raising awareness of the Euro PP among investors and making the market more fluid.
 
Contributing to the development of a European capital markets Union - The development of the Euro PP market is in line with the European Union's objective, expressed by the European Commission in its action plan for the establishment of a Capital Markets Union (September 2015) and reaffirmed during the review of this action plan (June 2017).
 
 
B. Definition, characteristics and execution period
 
B.1.   Definition
 
A Euro PP is a medium or long-term financing transaction between a listed or unlisted company and a limited number of institutional investors, based on ad hoc documentation, negotiated between the Borrower and the Investors, generally with the participation of an Arranger
 
Negotiation of contractual terms and conditions is an important feature of Euro PP transactions.
 
In most cases, the Euro PP is held until maturity by Investors ("buy and hold"), which have the requirement and ability to internally analyse and monitor credit and contractual obligations. While a Euro PP is generally transferable, its secondary liquidity is in practice limited due to the limited number of Investors and their "buy and hold" strategy.
 
The Euro PP allows great flexibility in terms of financing sizes and choice of format (bond or loan). Most often redeemable at maturity, with maturities generally longer than bank financing, bearing interest at fixed or floating interest rates, it may be denominated in Euro or in any other currency, to suit the parties.
 
Subject to exceptions related to the context of a particular operation, the Euro PP generally:
  • ranges from about 10 million euros to several hundred million euros,
  • aims at financing or refinancing the Borrower's development, and
  • maintains the Borrower's leverage ratio at a reasonable level (less than approximately 4x, with variations depending on the industry).
  • The Euro PP is complementary to other financing solutions, such as:
  • A syndicated public bond issue, such as Eurobonds: this market, which involves very large volumes (over 300 billion in 2018), is the subject of an active secondary market, based on large issues (at least 300 million) placed with a very large number of investors. Eurobond are generally rated by a rating agency. Unlike a Euro PP, the characteristics of Eurobond issues are pre-negotiated, without the investor being able to participate in their negotiation.
  • An issue in the form of a private placement under a Medium Term Note programme (EMTN in particular), of negotiable debt instruments (NEU CP and NEU MTN) or other commercial papers.
  • A bond investment by way of a public offering offered in particular to individuals (for example, the "IBO" initiative or crowdlending participatory financing solutions).
  • Quasi-equity or mezzanine financings, which may give access to the share capital of the issuing company.
  • Bank financing, short and medium term, syndicated or bilateral, allocated or unallocated, generally amortizable, the basis of the commercial relationship with banks.
B.2.      Characteristics
 
Existing formats The Euro PP can be carried out in the form of a bond issue or a loan[1].
 
Use of funds. The Euro PP allows the Borrower to finance both general needs and specific purposes (investments, acquisitions, projects, innovations, etc.).
The Euro PP can be labelled "green", "social" or "sustainable" when justified by the use of the proceeds. The nature of the projects or assets financed or refinanced, the precise use of the funds and the Borrower's communication commitments must then be described. Environmental, social and/or sustainable development criteria may be certified by third party experts[2].
 
Pari passu. Whatever the format chosen, a pari passu treatment between all senior creditors must be sought. In this context, Investors generally prefer an alignment of contractual commitments among financings of similar nature entered into by the Borrower, a sharing of security interests if any and the absence of any structural subordination.
 
Listing. In most cases, the Euro PP is not listed. However, to meet the investment criteria of certain investors, a Euro PP in bond format may be listed on a regulated market[3] or on a multilateral trading facility[4]. In the case of a listed Euro PP or if the Borrower has also issued other listed securities, particular attention must be paid to the possible consequences of the application of Regulation (EU) No. 596/2014 of April 16, 2014 on market abuse (as amended), Directive 2004/109/EC of December 15, 2004 on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market (as amended) and the rules applicable on the relevant market.
 
In summary, the main characteristics of the different Euro PP formats are as follows:
 
Format Listing Confidentiality Transferability
Bonds Bonds
traded on a regulated market
Euronext Paris, Luxembourg Stock Exchange, etc. No

Yes

No limitation allowed

Bonds
traded on a multilateral trading facility
Euronext Growth, Euronext Access, Euro MTF, etc. No[5]

Yes

No limitation allowed

 

Unlisted
bonds

None Yes[6]

Yes

Limitations may be set out in a transfer approval clause (without prohibiting any transferability)

Loans None Yes Yes, but only
to the extent permitted by the loan agreement
 
 
B.3.      Completion timeframe
 
Depending on the quality of the information available, the degree of preparation of the Borrower (for example, if the Borrower has already carried out a Euro PP) and the structuring of the transaction, some Euro PPs may benefit from an accelerated procedure, with a timetable of approximately 6 weeks between its launch and the payment of funds (see illustrative Timetable below).
 
The execution period may be longer in the event of a parallel negotiation of a bank financing, the taking of security interests, listing of the securities to be issued (reviewed by the market authority) or other constraints specific to the Borrower (e.g. compliance with black-out periods).
 
Illustrative timetable (accelerated procedure)
 
 
 
 
C.1.      Parties
 
Good practices. Each party to a Euro PP must adhere to good practices, comply with applicable legislative, regulatory and professional standards and act with integrity to ensure high standards of execution and appropriate credit risk management in the Euro PP market both in the initial analysis and, for Investors, in the monitoring of this risk throughout the life of the instrument. The possibility for Investors to rely on a third-party opinion is not a substitute for an internal analysis conducted at the time of the transaction and of its monitoring.
 
Roles of the different parties. The table below summarises the role usually assigned to each of the participants in a Euro PP. However, other arrangements may be agreed between the parties concerned.
 
  Arranging the Euro PP During the term of the Euro PP
Borrower

-  Signing of the Non-Disclosure Agreement with the Potential Investors and/or the Arranger[7] as soon as a Mandate[8] is signed between the Borrower and the Arranger (if any)

-  Preparation and provision of a Borrower's Presentation File[9] with the help of the Arranger if necessary

-  Presentation of the Borrower by its managers to potential Investors, in bilateral or group meetings, with the participation of the Arranger, if applicable

-  Delivery of "Know Your Customer" (KYC) documents[10] and ESG questionnaires[11]

-  Preparation of the Term Sheet[12]

-  Review and negotiation of the contractual documentation[13] with the assistance of its legal counsel

-  Payment of interest and redemption

-  Compliance with financial commitments and other covenants

Investor(s)

-  Signature of the Non-Disclosure Agreement with the Borrower and/or the Arranger[14] as soon as a Mandate[15] is signed between the Borrower and the Arranger (if any)

-  Management of the resulting confidential and privileged information, where applicable

-  Analysis of the information received (including the Borrower's Presentation File[16]), in particular credit risk and all available contractual undertakings[17], and request of additional information if necessary

-  Meeting with the Borrower at a restricted committee meeting

-  Review and negotiation of the Term Sheet[18]

-  Processing "Know Your Customer" (KYC) documents[19] and ESG questionnaires[20]

-  Transition to the investment committee

-  Review and negotiation of the contractual documentation[21]

-  Release of funds

-  Receipt of contractual information and annual meeting with the Borrower if necessary.

-  Monitoring of the credit profile and compliance with financial commitments and other covenants

-  Managing any renegotiations of terms

Arranger(s)[22]

(credit institution or investment firm authorised to make investments)

-  Origin - Identification of potential Borrowers

-  Negotiation and signature of an Engagement Letter with the Borrower[23] with an undertaking of confidentiality if necessary

-  Selection of potential investors

-  Preparation of estimates, if necessary, on behalf of the Borrower (legal counsel, financial agent, bondholders' representative)

-  Negotiation and signature of the Non-Disclosure Agreement, if any, with the Investors and/or the Borrower[24]

-  Assistance to the Borrower in the preparation of a Borrower's Presentation File[25]

-  Organisation of information exchanges between potential Investors and the Borrower

-  Preparation of the Term Sheet[26]

-  Assistance to the Borrower on the pricing

-  Participation to a Due Diligence session, in the form of a conference call (or otherwise) with the Borrower's managers, on the basis of a questionnaire previously sent to the Borrower by the Arranger

-  Execution - Monitoring and assistance in the drafting and negotiation of contractual documentation and verification of prerequisites (with the Arranger's legal counsel)

-  Securities settlement and delivery (bonds)

-  Periodic valuation of listed bonds, where appropriate

 

Legal counsel

-  Borrower's Counsel: information coordination, assistance to the Borrower in the preparation of the Information Memorandum or Prospectus and negotiation of contractual documentation. issuance of a legal opinion to the benefit of the Arranger (bond) and/or initial lenders (loan), and, where appropriate, to the identified secondary lenders acceding to the loan within 15 days after signature (loan)

-  Arranger's Counsel: drafting the legal sections of the Information Memorandum or Prospectus and drafting and negotiation of contractual documentation. issuance of a legal opinion to for the benefit of the Arranger (bond) and/or initial lenders (loan), and, where appropriate, to the identified secondary lenders acceding to the loan within 15 days after signature (loan)

-  Investors' Counsel: analysis of all documentation

-  Borrower's / Arranger's Counsel: ad hoc advice on any issue during the life of the Euro PP (particularly in the event of renegotiation, waiver, amendment, default, etc.)
Statutory Auditors -  Review of financial data in the Prospectus or Information Memorandum and delivery of a comfort letter to the Arranger (in the case of a Prospectus or Information Memorandum)[27] -  Certifying compliance with financial covenants, where appropriate
Financial Agent (bond)

-  Review of administrative procedures

-  Review and negotiation of the financial service contract

-  Where appropriate, securities settlement and delivery (bonds)

-  Management of the payment of interest and redemption payments
Bondholders' representative (bond)[28]

-  Review of administrative procedures

-  In the case of a Euro PP with security interests, the Bondholders' representative may also have the task of obtaining the security interests

-  Missions defined contractually according to the characteristics of the Euro PP[29]

-  Transmission of information received for monitoring the Borrower's contractual commitments, if any

-  General duty to investor representation

-  In the case of a Euro PP with security interests, the Bondholders' representative may also have the task of managing the security interests

-  Acts as a liaison between the Investors and the Borrower for action in the event of renegotiation, waiver, amendment, default, etc.

Facility Agent
(loan)

-  Review of the Loan Agreement and negotiation

-  Signing of the Loan Agreement

-  In the case of a Euro PP with security interests, the Facility Agent may also have the task of obtaining the security interests

-  Call for funds from Investors.

-  Release of funds to the Borrower

-  Missions defined contractually according to the characteristics of the Euro PP[30]  

-  Management of interest calculations and payments

-  Transmission of information received for monitoring the Borrower's contractual commitments (ratios, accounts)

-  In the case of a Euro PP with security interests, the Facility Agent may also have the task of managing the security interests

-  Acts as a liaison between the Investors and the Borrower in the event of renegotiation, waiver, amendment, default, etc.

Electronic platform (if applicable) -  Allows Borrowers, Arrangers, Investors and legal counsel to smoothen the exchanges, in particular for the various documents (non-disclosure agreements, Borrower's Presentation File, Term Sheet and contractual documentation), from the beginning of the transaction to its settlement -  Technical communication channel between the Borrower and its Investors, in accordance with contractual commitments (communication of financial information, certificates relating to financial commitments, etc.)
 
 
C.2.      Documentation
 
Main elements. The Euro PP documentation consists mainly of the following elements:
  • Mandate: an engagement letter entered into between the Borrower and the Arranger which sets out the terms and conditions of the Arranger's intervention.
  • Non-Disclosure Agreement (see Appendix 2): the transmission of confidential information (any non-public information), some of which may be privileged, is managed through the Non-Disclosure Agreement signed between the Borrower and/or the Arranger and the Investors, a form of which is set forth in Appendix 2, and in compliance with applicable laws and regulations, regardless of the format of the Euro PP (bond, listed or not, or loan).
  • Indicative marketing term sheet (see Appendix 5): prepared by the Borrower and the Arranger at the beginning of the process, the indicative marketing Term Sheet provides Investors with a summary of the main financial and legal arrangements envisaged for the Euro PP taking the Borrower's credit risk into account.
  • Final Term Sheet: this detailed Term Sheet is the result of negotiations between the Borrower, the Arranger, if any, and the Investors.
  • Borrower's Presentation File (see Appendix 1): it is recommended that the Borrower, with the assistance of the Arranger, if any, gather all information regarding the Borrower in a
Presentation File given to each potential Investor as soon as possible, a template of which is provided in Appendix 1.
 
The Borrower's Presentation File may consist of a set of documents or a single document containing all the required information.
 
For Euro PPs in the form of unlisted bonds, the Borrower's Presentation File containing the information described in Appendix 1 is sufficient.
 
For Euro PPs in the form of listed bonds, the Prospectus or Information Document serves as the Borrower's Presentation File:
 
-  In the case of bonds admitted to trading on a regulated market: the Prospectus describes the Borrower (business, financial information, risk factors), the bonds issued (terms and conditions of the bonds and risk factors related to the bonds) and the investment terms, in accordance with the format applicable to the regulated market (Prospectus Regulation); an admission file with the competent authority and an admission file with the market operator must also be prepared.
 
-  In the case of bonds admitted to trading on a multilateral trading facility such as Euronext Growth or Euro MTF: the Information Document describes the Borrower (business, financial information, risk factors), the bonds issued (terms and conditions of the bonds and risk factors related to the bonds) and the investment terms, in accordance with the format required by the rules of the relevant market; an admission file with the market operator must also be prepared.
 
-  In the case of a Prospectus or Information Document: Comfort letter from the Borrower's statutory auditors delivered to the Arranger or Investors, in which the statutory auditors give their opinion on any changes in certain financial information since the date of the Borrower's last audited or reviewed financial statements.
  • For the bond format: Arranger's due diligence questionnaire addressed to the Borrower to complete or confirm, as the case may be, the Borrower's representations and warranties contained in the placement agreement or the subscription agreement[31].
  • For the bond format: Placement or subscription agreement (see Appendix 6) entered into between the Borrower and the Arranger or the Investors, pursuant to which the Borrower undertakes to issue the bonds, the Arranger undertakes to do its best efforts to place the bonds and/or the Investors undertake to subscribe to the bonds, based on a number of representations, warranties and undertakings made by the Borrower.
  • For the bond format: the terms and conditions of the bonds (attached to the placement or subscription agreement (see Appendix 6) or, in the event of a listing, incorporated in the Prospectus or Information Document) define the characteristics of the bonds and in particular the following information: form, maturity, interest rate, issue and redemption terms, early maturity, financial and other commitments, protection and exercise of Investors' rights.
  • For the bond format: Financial service contract entered into between the Borrower and the Financial Agent (if any), for the purposes of organising the financial flows during the lifetime of the bond (interest payments, redemption and methods of calculation of the amounts due, as the case may be).
  • For the loan format: Loan agreement (see Appendix 7) and its appendices, signed between the Borrower and the initial lenders.
  • In the event of security interests: Documentation of the security interests and, where applicable, inter-creditor agreements
  • Legal opinion of the Borrower's and Arranger's legal counsel
Model Documentation. Within the framework of the Market work, contract templates have been drawn up to provide a practical illustration of the documentation of each type of Euro PP:
  • for Euro PPs in the form of a bond issue: model form of subscription agreement, to which is attached a form of the terms and conditions of the bonds (see Appendix 6);
  • for Euro PPs in the form of a loan: model form of loan agreement (see Appendix 7).
These model forms have been developed through a consensual approach to take into account the interests and constraints of each party[32]. It is based on market practices developed since 2012 and on the principles defined in this Charter. This documentation is also available in French, English and Italian on the Euro PP website: www.euro-privateplacement.com.
The contract templates are provided for information purposes only. In particular, attention is drawn to the importance for each party to negotiate the contractual terms of each Euro PP, to adapt it according to the type of transaction, the Borrower's situation and market conditions.
 
 
C.3 Recommendations
 
Digitisation. The digitisation of processes such as the validation of non-disclosure agreements or the exchange of information between Borrowers, Arrangers and Investors, during the structuring of the Euro PP and during the life of the Euro PP, enhances the efficiency of the Euro PP market for the benefit of Borrowers, Arrangers and Investors, and should be encouraged.
 
Financial analysis and credit risk management. Credit risk analysis and monitoring are essential for investors and market resilience. A collection of best practices in financial analysis and risk management for Euro PPs "Financial analysis and risk management for Euro PPs" is available on the website www.euro-privateplacement.com.
 
Dissemination of information during the life of the Euro PP. Regardless of the format chosen and whether or not there is a Facility Agent or a Bondholders' Representative, regular exchanges between the Borrower and the Investors ensure the proper conduct of the Euro PP, and in particular the smooth running of any renegotiations. It is important for the Borrower to ensure that Investors are provided with a simple and rapid method of disseminating contractual information through the Bondholders' Representative, the Facility Agent and/or an electronic platform. In all cases, financial information must be published, transmitted or made available at the same frequency and within the same time frame as to the lending banks, if any, and subject to compliance with applicable inside information rules, if any.
 
Communications on transactions carried out. For market monitoring, it is important to organise a certain transparency of the Euro PPs carried out: this makes it possible in particular to promote the market, to have references for the structuring and pricing of new operations and to facilitate the supervision of financial stability authorities. In any event, a Borrower may choose to keep all or part of the terms of the transaction confidential and to refuse such disclosure. Article 8 of the subscription agreement template (bond format, see Appendix 6) and Article 27.3 of the loan agreement template (loan format, see Appendix 7) are intended to allow this communication.
 

[1] For this reason, we use the term "Borrower" in this document both in the case of a Euro PP in the form of a bond issue or a loan (borrowing for the Borrower). This term can refer either to a company or a public authority.
[2] See in particular the work of the International Capital Market Association (ICMA) on Green Bond Principles, Social Bond Principles and Sustainability Bond Guidelines and of the Loan Market Association (LMA) regarding Green Loan Principles and Sustainability Linked Loan Principles.
[3] Regulated market, as defined in Article L. 421-1 of the French Monetary and Financial Code.
[4] Multilateral Trading Facility (also often referred to by the acronym MTF), as defined in Article L. 424-1 of the French Monetary and Financial Code.
[5] However, some multilateral trading facilities, such as the Euronext Access market, do not require the publication of an Information Memorandum.
[6] To a certain extent only if the bonds are admitted for clearing to Euroclear France (see point of attention in Appendix 6: Article 2 of Appendix 1).
[7] See C.2. and Appendix 2
[8] See C.2.
[9] See C.2. and Appendix 1
[10] See Appendix 3
[11] See Appendix 4
[12] See C.2. and Appendix 5
[13] See C.2. and Appendices 6 and 7
[14] See C.2. and Appendix 2
[15] See C.2.
[16] See C.2. and Appendix 1
[17] In May 2017, a working group set up by the Euro PP Committee published a collection of best practices, "Financial Analysis and Risk Management for Euro PPs", available on the Euro PP website: www.euro-privateplacement.com.
[18] See C.2. and Appendix 5
[19] See Appendix 3
[20] See Appendix 4
[21] See C.2. and Appendices 6 and 7
[22] On January 13, 2016, the French Financial Markets Association (AMAFI) published a "Code of best practices for Euro PP arrangers" aimed at standardising the good professional practices of Euro PP arranging institutions via a market standard, available on the AMAFI (www.amafi.fr) and Euro PP websites (www.euro-privateplacement.com).
[23] See C.2.
[24] See C.2. and Appendix 2
[25] See C.2. and Appendix 1
[26] See C.2. and Appendix 5
[27] See C.2.
[28] If the bonds have a nominal value of at least 100,000, it is possible to replace the Masse regime with a purely contractual representation system without a Masse or a Bondholders' Representative
[29] Depending on the tasks entrusted to the Bondholders' Representative, his remuneration will be adjusted.
[30] Depending on the tasks entrusted to the Facility Agent, his remuneration will be adjusted.
[31] For the loan format, these aspects are covered in the loan agreement.
[32] Representatives of the various participating professional associations and stakeholders in the Euro PP market (Borrowers, Investors and Arrangers) contributed to the drafting of these templates with the help of CMS Francis Lefebvre Avocats, Gide Loyrette Nouel and Kramer Levin Naftalis & Frankel.