Approvals for Peso Borrowings
Peso-denomnated transactions have a different approval process.
1. Issue RFP
2. Evaluate and Request Board for Approval of the Transaction (this is a requirement of the BSP-DER)
3. Inform the selected bank4. Request for DOF Approval (unlike international deals in which agreements are cleared by the IAC-FLRD, peso agreements only requires the clearance of DOF).
5. Request for MB Opinion, facilitated by DER
So when the boss said the Director of ID already agreed that the approval in principle covers the peso, it does not make sense because they only look at dollar-denominated deals. Strongly note that with PESO, only the DOF calls the shots.
Financing Proposal Evaluation
Proposal Evaluation:1. Tenor
2. Structure (Fixed or Floating)
3. Amount
4. Currency
5. Coupon
6. All-in Cost (YTM)
7. YTM over relevant ROP
9. Fees
10. Special Features
Please note the following:1. Convert everything to semi-annual paying instruments.
2. Convert everything to coupon-paying instruments.
3. Convert fix to floating
4. Convert floating to fix
5. Put all fixed-rate/floating-rate with the same tenors in one excel worksheet.
PSALM Dancing with Former DOF Usec. Singson
Gabriel "Jay" Singson Jr. (the one in barong, far right) is the former Undersecretary of Department of Finance for Special Concerns and Privatization. I saw him several times in a meeting with Debt and Risk Management Team of the Republic. I formally met him after a meeting with Director Joji Cruz in the office of WESM in Ortigas. I can only remember his Korean-like smile and his firm handshake. I haven't heard him talk on work-related issues though because he was already leaving DOF when he got on-board in financing activities. I didn't dance that night becaus ethe songs they were playing were old but it was a delight watching him. I would also like to add that he doesn't look like his Dad -- the close friend of the great John Gokongwei -- former BSP Governor Singson. He is actually an improved version of his dad, who has strong facial features.
A Cross-Functional Group in Action
Representatives of Asset Management, Legal and Finance. Indeed, a cross-functional group.
Meeting with Chairman Suratos
Lessons learned: 1. Courtesy calls do expedite processes.
2. He trusts the judgement of his staff.
3. Forward request for review before you hold a meeting with them.
Atty. Armando Suratos is the Chairman of the Inter-Agency Committee for the Review of Foreign Loan Documents (IAC-FLRD). He is also a member of the Monetary Board. The core members of the IAC include BSP, Department of Justice(DOJ) and Department of Finance (DOF).The Secretariat of IAC is the BSP ID.
How does the process with IAC flow?After the request for approval in principle of your transaction has been granted, you begin negotiating for improvements on terms and rest of the agreements. The Issuer, the Guarantor and the Bank should have already resolved all issues before proceeding to the IAC. In document form, a clearance from the Issuer and Guarantor should be attached to request for review and clearance of the IAC.
The IAC is the last authorizing entity that the Issuer would have to deal with. Without the IAC clearance, agreements can't be executed and MB final approval may not be granted.
Learning Organizations: TQM 2003
I am posting my notes of my report of LEARNING ORGANIZATIONS in my Total Quality Management class under Mr. Nestor Raneses. Basically, it is about dealing with change due to intense competition, reduction of barriers to trade, faster information dissemination through culture change. Opening of highly-concentrated groups to expertise of other teams. Grasping the big picture and knowing your contribution to achieving grand goals. Admits that might not be easy to practice but can be done. People just have to be totally pscyhed to do it.
Slide 1Since the 1980s, the world of business has begun to see the need for entirely new models of management in order to succeed in regaining and defending a position of global competitiveness.
Why? What happened?
On the same decade, flagship US corporations, such as GM and IBM, plunged into failure in the face of devastating competition from Japanese rivals.
Slide 2Surprisingly, intensive overseas competition came not from low wage areas but from those that reinvented the business corporations to produce unprecedented levels of quality at low prices.
As the 80s turned the 90s, the US managers were challenged to understand the new Japanese paradigm and determine how US companies could compete successfully on these new terms.
Note, however, that it would be foolish to claim that the new paradigm was the sole factor determining the success of some US companies such as Ford but we believe that it was an essential component of their recovery.
Slide 3So a new paradigm was needed for US businesses. Note again that this paradigm does not necessarily allow us to counter-strike but we must understand it.
There are several sources we must study in order to understand what must have been done differently
- atypical companies, which have successfully met the global challenges
- insights of the QUALITY consultants especially DEMING
Slide 4The "Art..." by Pascal and Athos, focused on Matsushita, highlighted management's dedication to building a culture that pays attention to each of the seven strategic factors, both "hard" and "soft".
What does US practice?
They paid more attention on hard strategic and structural factors than long-term attention to culture building.
In Matsushita, culture building occurred over several decades finely adjusting to perfect fit.
Slide 5To substantiate this part of the report, let us look at Theory Z: How American companies can meet Japanese competition.
Theory Z is named to designate a third model different from
(I'll check it out soon). It anticipated much of work that adopted the banner of L.O (Again, pardon the lack in information. I think the presentation is in my old notebook). When this factors are cultivated over the long-term within a well-integrated organization and employees do not have their performance appraised against measured criteria, accountability is maintained within a deeper and more subtle shared understanding of the fundamental goals of the enterprise, shared by workers and managers.
Slide 6-experience and thinking provides third major body of knowledge
Full Circle (Neglected in US companies): Deming's thinking methods influenced some of the leading Japanese companies, which were embraced in their strong and patiently-built corporate cultures. They do this through cross-functional teams, across different status levels, united "horizontally" by a focus on giving customers what they expect.
Real Quality Thinking is a radical break with bureaucratic organization.
Slide 7Bureaucratic Organizations: central feature of modern, western economies and public administration (I wrote this down " At this point, read slides: Defined by main features"
Whatever their advantages, bureaucracies are not nice places to work.
Communication, especially going up the hierarchy, tends to be systematically distorted.
Assumes expertise of higher levels to solve problems - wrong, because higher level managers lacked the information possessed by lower level workers and vice-versa.
Reasons for not sharing: fear of punishment, boss' refusal to listen, secretiveness of subordinates
Slide 8Sometimes, these informal arrangements are aligned with the goals of the organization, sometimes they served the goals of the sub-unit rather than those of the whole organization and sometimes they involved sabotaging efforts of the administration to tighten controls on the rank and file.
Slide 9The Bureaucratic Paradigm - mechanistic product of a modernists, objectively stated
(actually, I don't understand what I wrote here because the punch hole took off much from the statement), stipulates required structural features and operating principles -- no post-modernist non-sense about different viewpoints and different realities
So this leads us to question what is a learning organization? One that continually expand its capacity to create.
Generative Learning -- learning that enhances our capacity to create.
Slide 10-16Peter Senge overviewed the pratice and theory of the L.O. in terms of 5 disciplines that include many tools and infrrastructure.
The Five Disciplines include:
Systems Thinking: learning to see the big picture, to understand how the consequences of our actions loop around to affect us in unsuspected ways and to use this analysis of system dynamics to find points of leverage to free the organization from vicious cycles that thwart effectiveness
Essential that individual aspirations of the membersare linked to the goals of their teams, which should be integrated into the larger corporate goals.
The first 3 disciplines have particular application for the individial participant and the last 2 have group application.
Those who excel in these areas will be natural leaders of learning organizations.
Systems Thinking: distinction as the the fifth (5th) discipline since it serves to make the result of the other disciplines work together for business benefit.
Fundamentally distinguish learning organizations from traditional authoritarian "controlling organzations" will be the master of certain basic discipline.
Systems Thinking: tools developed in 50 years.
Essense of Discipline lies in a shift of seeing (
I still have to find out why I left this blank) rather than linear cause-effect. Seeing processes of change rather than (again, blank).
Starts with simple concept called FEEDBACK.
Systems Archetypes are basic and understandable cycles that systems go through.
If we have personal vision and we also see current reality objectively, then the difference between the 2 causes "creative tension", which can be drawn from
(i cant remember what should fill the blanks. Hehehehe), in current reality, to the vision.
Commitment to the truth is the other part of the process.
Using the subconscious is important in personal mastery
( I am pretty sure that this is not something paranormal. TQM might have a different definition for subconscious because it sounds like it doesn't make a huge sense. Nonetheless, this is acceptable as far as I am concerned.)Mental Models: The discipline of working with MENTAL MODELS starting with (another blank from the outer space), internal pictures of the world,
(oh maan! another blank!), hold them rigorously (huh?). It also includes "Learning Conversations"
(my notes has "learningful")The discipline starts with
(refer to the powerpoint presentation that I have yet to find), the capacity members of an organization to learn to suspend (another blank, which means it is in the powerpoint being flashed while I was reporting) and enter into a genuine "thinking together". It involves learning how to recognize patterns of interactions in teams that undermine learning such as DEFENSIVENESS.
Involves mastering the practices of dialogue and discussion -- two distinct ways that teams converse. In dialogue, there is free and
(ahem..ahem). In contrast, discussion
(has been cut because I was referring to the slide).
Dialogue and discussions are potentially complementary but most teams lack ability to distinguish between the two and move consciously between them (For me, dialogue is brainstorming and discussion is coming up with resolution).
For more information, please see David Bohm's analytical discussion on suspending assumptions, team members regard each other as colleagues and on facilitator, who holds the context.
Mind Mapping: way of thinking that you can develop as an individual .
Paradigm Shifting Devices: should you become a manager or someone who could initiate change.
Economist: Job Description
Will conduct macroeconomic analyses of the U.S. and Japanese economies.
Will collect, interpret, analyze and report macroeconomic and financial information to contribute to the company's knowledge of economy-wide, sector specific and industry specific economic trends and market developments ("macroeconomic drivers") affecting the value of equity and bond investments in those countries.
Will investigate the contribution of various macro-factors (e.g., balance of payments, currency valuation, inflation, budget deficits, inventories, consumer debt and spending, interest rates) to GDP growth.
Will devise and select data collection and sampling methodologies for economic research studies, applying appropriate econometric techniques (game theory, probability theory) and statistical analyses (regression analysis, correlational techniques, Hodrick Prescott filters) to assess the validity and reliability of research outcomes.
Will complete studies of the effects of multiple macroeconomic factors on target industrial and commercial sectors, and stock and bond risks and returns within those sectors.
Will use advanced applications of financial and econometric software and graphing systems to complete analyses of macroeconomic trends ("yield curves"), test research hypotheses, and prepare economic forecasts for use by Capital Group portfolio analysts and asset allocation committees.
Will keep abreast of developments in macroeconomic theory, and in theories of finance and monetary economics, reading the emerging academic literature on topics related to quantitative and model based economic and financial research.Masters degree with a major in economics or finance. Minimum one year (prior to Masters is OK) as economist, investment analyst, or in related occupation. On-the-job experience in constructing quantitative and statistical macroeconomic research for investment decision-making. Training or experience in the use of econometric analysis packages (including Microfit, Shazam, Eviews, SPSS) and financial software packages (Datastream, Stockval, Factset, Bloomberg, Marketwatch, Reuters, Research Direct) for macroeconomic modeling and analysis. Training or experience in advanced applications of Microsoft Excel. Training or experience in the mathematical bases of current academic macroeconomic research, including calculus and optimization techniques, matrix algebra, probability theory and multivariate statistics. Training or experience in the conduct of yield-curve (term-structure) scenarios and in macroeconomic forecasting.
Lead the development, enhancement and utilization of all major aspects of statistical, econometric and financial models in the assigned area of business specialization (e.g. capital allocation, credit risk analysis, new product development, etc.)
Understand the technical issues associated with financial and statistical modeling, and apply these skills to business problems.
Provide technical advice and guidance to senior management on all results from financial and statistical models.
Develop rules, benchmarks etc. for the analysis and interpretation of model data.
Develop and report forecasts on major economic and financial trends, including regulatory issues, and propose appropriate Freddie Mac business response.
Conduct statistical analyses of performance on an ad-hoc basis. Lead a team of managers and analysts.
Job requires a PhD .in Economics, Econometrics, Statistics, Finance, Mathematics or related discipline or an equivalent combination of education and experience from which comparable knowledge and skills may be acquired; five years of experience including experience using specialized statistical tools (e.g. SAS, "Fair Lending
Meeting with a Bank Week 3 August 2006
I had the following on my notes when I attended this meeting:
1. Check requirement by October: PHP 409 Billion, roughly less than US$100 Million.
2. Remind them to submit a proposal while waiting for RFP
3. In Thailand, corporates borrow yen-denominated loans (low-yielding instrument) fromw hich they based their taxes then swap it to US dollars (currency of the high-yielding instrument).
4. The bank does not have a local office so no operations involving peso but there is so much liquidity in US dollar-yen that they can facilitate. So they can design a longer-term two-step transaction
5. Since we can no longer accommodate loan instruments with maturities equal or shorter than five years, the bank worried that it might be futile ven to respond to our RFP. I said that they can still forward to us their proposals because we really can't make any commitment as to how the entire debt profile looks until we have received all the proposals.
6. One of their bankers moved to another bank. They have noticed increasing movements of bankers. Mr. T said, he noticed the same thing in 1997 before the the onset of the Asian Financial Crisis.
7. A colleague asked the bank's reading of the Japanese economy. They reported that the Japan economy is highly reliant on the economy of China. If China continues to grow and as a result, import capital equipment from Japan then we see on overweight in expectations for Japan's stability. This is further evence by increased demand by their Japanese clients for investments.
8. It was further inquired on the balancing of prtfolio in terms of fixed and floating, the bank responded that usually, it's just half fixed-rate and half floating to limit losses due to volatility.
So it would really depend on the maturities. If you see that interest rates would eventually decline then short-term holdings should be floating. If rates are in the short-term increasing then have it fixed. Seince more than 60 percent of our debts are fixed-rate then we are open to floating but in the end it would all depend on the all-in cost.
Schedule 2: Terms and Conditions of the Notes
Note that this is part of the Fiscal Agency Agreements. The terms and conditions are broken down as follows:
1. Status, Guarantee, Form, Denomination and TitleIf you have read the Purchase and Fiscal Agency Agreements, you are already familiar with the guarantee. The discussion on the ranking in priority of payment, however, is found on this part. The Notes shall rank pari passu with all other present and future External Indebtedness of the Issuer and those guaranteed by the Guarantor. We usually watch out for this provision because banks usually draft all indebtedness.
2. Transfer of Notes - Just a declaration that the Notes are issuable only as fully registered global securities and limitations as regards transfer and exchange. This provision is standard for Notes issued under Rule 144A and Reg S.
3. Negative Pledge - Non creation of secuirty interest on its assets. This is also a standard provision
4. Interest - Rate of Interest is determined by the fiscal agent or its duly appointed successor (the Agent Bank) from the Screen Rate. If this is not available, the Agent Bank, at least 2 Reference Banks will provide such rates. the arithmetic mean will be the determined Rate of Interest. Worst case scenario is adopting the Rate at the last preceding the (day before the last recent) Interest Determination Date.
It is interesting to note that Reference Banks means the principal New York Office of each four major banks engaged in the London interbank market selected by the Agent Bank. Screen Rate, on the other hand, is Moneyline Telerate Page 3750 or such other service (like Bloomberg) as may be nominated by the British Banker's Association.
Interest Determination Date means the second Banking Day in London before the commencement of the Interest Period for which the rate shall apply.
I still have to check this, if the Determination Date falls on Wednesday then it's Tuesday. Note that if coupon payment is semi-annual, the computed interest against the principla must be divided into 2.
5. Redemption and Purchase - Basically, it's the maturity date and the option of the Issuer and the Guarantor to purchse the Notes in the open market.
6. Payments - nothing much here, just a description of the delivery
7. Taxation - all payment sof principal and interest in respect of the Notes shall be made free and clear of and without withholding or deduction for any taxes..blah..blah...blah. Standard provision unless there's a new tax ruling.
8. Events of Default - This is important and must always be read and negotiated. Curing periods should be stretched as long as possible. We were able to stretch up to 90 days. Payment default, Cross-default (Issuer has US$25 Million aggregate principla amount that is due and payable as a result of default), any event or condition the accelerates maturity of any External Indebtedness amounting at least USD$25 Million, bankruptcy, moratorium, law ceasing Issuer's existence, Guarantor ceasing IMF membership.
9.Prescription10. Replacement of Notes11. Meeting and Amendments 12. Further Issues - issue further securoties having the same terms and conditions as the Notes in all respects ( re-opening, tap)
13. Substitution - amendment to the Fiscal Agency Agreement
14. Notices15. Governing Law, Waiver of Immunity, Jurisdiction - should be similar with the provisions of the Fiscal Agency Agreement. Similar in principle with the Purchase Agreement.
Direct liabilities are obligations whose outcome is predictable, while contingent liabilities are obligations that may or may not come due, depending on whether particular events occur. The probability of their occurrence may be exogenous to government policies (for example, if they are related to natural disasters) or endogenous (for example, if government programs create moral hazard).
Explicit liabilities are specific obligations, created by law or contract, that governments must settle.
Implicit liabilities represent moral obligations or burdens that, although not legally binding, are likely to be borne by governments because of public expectations or political pressures. Conventional fiscal analysis tends to concentrate on governments' direct explicit liabilities. These include repayments of sovereign debt, budget expenditures for the current fiscal year, and longer-term expenditures for legally mandated obligations (such as civil service salaries and pensions and, in some countries, the overall social security system).
Direct implicit liabilities are often a presumed, longer-term consequence of public expenditure policies and are not captured in government balance sheets. In countries with pay-as-you-go pension schemes, for example, future pensions constitute direct implicit liabilities. Their magnitude is determined by how generous pension benefits are, how many people are eligible to receive them, and at what age pensioners become eligible, as well as by future demographic and economic developments.
Contingent explicit liabilities are legal obligations for governments to make payments only if particular events occur. Because their fiscal cost is invisible until they come due, they represent a hidden subsidy and a drain on future government finances, and complicate fiscal analysis. State guarantees and financing through state-guaranteed institutions may, in the short run, be more attractive than outright budgetary support because of their hidden nature. Such contingent explicit liabilities, however, may well turn out to be more expensive in the long run. Moreover, they may create moral hazard in the markets, particularly if governments guarantee all, rather than a part of, underlying assets (such as a credit to an enterprise) and all risks, rather than selected political and commercial risks. State insurance schemes, for example, often cover uninsurable risks of infrequent but potentially enormous losses; these schemes redistribute wealth because they tend not to be self-financed, through fees, but rely on government financing.
Contingent implicit liabilities are not officially recognized until after a failure occurs. The triggering event, the value at risk, and the amount of the government outlay that could eventually be required are all uncertain. In most countries, the financial system represents the most serious contingent implicit liability. Experience has shown that, when the stability of a country's financial system is at risk, markets usuallyexpect the government to provide financial support that far exceeds its legal obligation.
Fiscal Agency Agreement
From experience: In order for us to understand this agreement, we must know what is a Fiscal Agent. A fiscal agent keeps a register of the names and addresses of holders of Notes. The transfer of the Notes shall only be effected only by means of an entry in the register. In our recent international transaction, the bank that was appointed as fiscal agent was also the paying and transfer agent.
From Barrons: 1. usually a bank or a trust company acting for a corporation under a corporate trust agreement. The fiscal agent handles such matters as disbursing funds for dividend payments, redeeming bonds and coupons, handling taxes related to the issue of bonds, and paying rents.
2. agent of the national government or its agencies or of a state or municipal government that performs functions relating to the issue and payment of bonds. For example, the Federal Reserve is the U.S. Government's fiscal agent.
From Investopedia: An organization, such as a bank or trust company, that takes responsibility for the fiscal duties of an unrelated party.
These fiscal responsibilities generally include the disbursement of interest and maturity payments on bonds, dividend payouts, and certain tax issues related to corporate securities.
So, if it is a local bond issue, the Bureau of Treasury automatically becomes the fiscal agent, whose responsibility is governed by a Memorandum of Agreement.
A Fiscal Agency Agreement has several parts and annexes. I'll discuss the annexes in another post so we'll just focus on the main document, which has the following:
1. Interpretation - words and expressions defined in the Conditions and not otherwise defined in the Agreement shall have the same meanings when use in the Agreement.
2. Definitions - I don't think there is anything interesting here just like the provisions in the interpretation. I am still wondering though if the definition of Regulations has anything to do with Reg S and Rule 144A. Anyways, it goes this way:
Regulations means the provisions set forth herein concerning the transfer and registration of the Notes, as the same may be amended, supplemented or replaced from time to time by the Republic with the prior written approval of the Fiscal Agent and the Registrar, but without the consent of the Noteholders;
The Notes will not be registered under the United States Securities Act of 1933, as amended (the Securities Act). Accordingly, the Notes will be offered only:
(i)to persons reasonably believed to be qualified institutional buyers (QIBs) in compliance with an exemption from registration provided by Rule 144A under the Securities Act (
Rule 144A); and
(ii)in offshore transactions in reliance on Regulation S under the Securities Act (
Regulation S).
Now I understand that Rule 144a is for the QIBs in some location, say New York, and Reg S is for those going offshore. 3. Appointment of Agents - nothing much here. Just a declaration that an entity will be the fiscal agent.
4. Form of the Notes - fully registered, without coupons in minimum denomination of US$2000.
5. Payment - Basically, it provides details as to appropraite responses when payments due were/weren't received. Borrower shall inform Fiscal Agent the amount it would pay a day before the actual payment date. It is interesting to note that it's not the Fiscal Agent who delivers payment to Noteholders but the Paying Agent. Moreover, the Paying Agent may advance payment to Noteholders but with approprioate charges based on the ff:
The borrower, shall on demand reimburse the Fiscal Agent for the relevant unpaid amount, and pay interest to the Fiscal Agent on such relevant unpaid amount from the date on which it is paid out to the date of reimbursement at a rate per annum equal to the arithmetic mean (rounded if necessary to the fifth decimal place, with 0.000005 being rounded upwards)
as established by the Agent Bank of the rate at which three-month deposits in U.S. dollars are offered by Reference Banks to prime banks in the London interbank market at approximately 11:00 a.m. (London time) on the first day of such interest period for loans in U.S. dollars to leading European banks for a period of three months commencing on the first day of such subsequent interest period, plus __ per cent. per annum. If the rate cannot be determined in accordance with the above provisions, the rate shall be determined as at the last preceding date on which interest is determined.
I still have too check the exceution copy as to the percentage added to the basis, which is the rate offered to prime banks for 3-month deposits.6. Repayment - This is about reimbursement by the Fiscal Agent of the borrower's debt service that has been determined as void. The Fiscal Agent is not enjoined to pay is not enjoined any sums that debt service should have earned if it were deposited in the bank. In addition, this provides that the Paying Agent notifies NPC any interest and/or principal payment unclaimed for two (2) years.
7. Book Entry Provisions - Notes sold on reliance on Rule 144A will be evidenced by Form of Restricted Global Certificate (Sechedule 1, Part IV) while those sold on reliance of Reg S will be in the form of Unrestricted Global Certificate (Schedule 1. Part III).
Definitive Notes (if you look at the form, it impresses that the Noteholder is determined so may be held until maturity will not be traded but would still have to check.Certificates with respect to Notes sold in reliance on Rule 144A, will bear the Securities Act Legend, shall be known as the Restricted Notes.
Other Notes not bearing the Securities Act Legend and such Notes will be known as Unrestricted Notes.
The global note issued in respect of the Restricted Notes will be deposited with a custodian for, and registered in the name of, a nominee of DTC. The global note issued in respect of Unrestricted Notes will be deposited with a custodian for, and registered in the name of a nominee of, DTC (for its direct and indirect participants, including Euroclear and Clearstream).
8. Determination and Notification of Rate of Interest and Interest Amounts - The Fiscal Agent is the calculation agent based on certificate given by a Reference Bank. The Reference Bank, however, is not defined in the Fiscal Agency Agreement but in Schedule 2, which is the Terms and Conditions of the Notes. It is our responsibility to insure that the Reference Bank is not the only source of the calculation but also rates found in Bloomberg or Reuters.
----
I stopped here to finish the Terms and Conditions because there are references in the main docs but we are going to proceed. The description, however, would zero-in on the commercial terms. 9. Redemption, Cancellation, Destruction and Records - This is a standard provision. Just check if it is similar to the past agreements.
10. Replacement Notes - standard provision. Be wary, however, on the instructions regarding replacement. The Noteholder should have sufficient evidence to prove his/her ownership.
11. Notices to Noteholders - standard provision
12. Documents and Forms - standard provision
(you should know by now that by defining this as standard means just check it with the most recent past loan agreement)13. Fees and Expenses - the important thing to remember when negotiation is to establish that all fees to be paid and expenses to be reimbursed by the issuer/borrower should be reasonable and documented.
We had a terrible experience in the bond exchange that compels us to blacklist one bank. The said bank should have informed us that they held a meeting to discuss the assumption of the new corporation before they billed us. They should have also informed us that they sought legal counsel. Until now, they have not proven that we were informed about the aforesaid services. I won't budge. I'll really hardline on this. 14. Indemnity - Indemnify the Fiscal Agent of any damages arising from legal proceedings brought against the Issuer EXCEPT those as a result of breach by an Agent of the terms of the Agreemnt or arising from an Agent's wilful default.
Stand on guard on this provision because most Fiscal Agents and Underwriters expand this even to damages caused by them.15. General16. Duties of the Fiscal, Registrar and Transfer Agents - This part will enlighten you on the difference in the functions of Fiscal Agent, Registrar and Transfer Agent.
The Fiscal Agent manually authenticate and delievr each Note. The Registrar, on the other hand, just keeps a register of names and addresses of the Noteholders in their office in New York ( In New York because because the Agreement is governed by the state's law). Meanwhile, a transfer agent would make available teh forms of transfer, forms of proxy and any certificate as to ownership in respect of the Notes.
Clear? Now we know. 17. Changes in Agents - standard provisions just notices. Issuer may terminate the services of the Fiscal Agent. Fiscal Agent may resign. In any event. both would provide 60-90 days notice.
18. Communications - Same provisions discussed in the Pruchase Agreement
19. Substitution of Issuer20. Waiver of Immunity, Submission to Jurisdiction and Appointment for Service21. Meetings and Amendments22. Further Issuances23. Severability - In case provisions of the Agreement are invalid, the parties shall endeavor to replace the invalid provision.
24. Governing Law and Counterparts-----------
Schedule 1:Part I Form of Unrestricted Individual Certificate
Part II Form of Restricted Individual Certificate
Part III Form of Unrestricted Global Certificate
Part IV Form of Restricted Global Certificate
Schedule 2: Terms and Conditions of the Notes
Schedule 3: Form of Guarantee
Euroclear System and Clearstream Banking
Clearstream Banking S.A. (CB) is the clearing division of Deutsche Börse, based in Luxembourg. It was created in January 2000 through the merger of Cedel International and Deutsche Börse Clearing, part of the Deutsche Börse Group, which owns the Frankfurt Stock Exchange. Cedel, established in 1971, specialized in clearing and settlement. In 1996 it obtained a bank licence.
In July 2002 Deutsche Börse purchased the remaining 50% of Clearstream International for €1.6 billion. Deutsche Börse's strategy is to be a vertical securities silo, providing facilities for the front and back ends of securities trading. By 2004 Clearstream contributed €114 million to Deutsche Börse's total Earnings Before Interest and Taxes (EBIT) of €452.6 million. It handled 50.0 million transactions and was custodian of securities worth € 7,593 trillion.
Following the publication of Révélation$ (2001) by investigative reporter Denis Robert and Ernest Backes, Clearstream was accused of being an international platform for money laundering and tax evasion via an illegal system of secret accounts. This became known as the "Clearstream Affair". However, in Spring 2004, a "Second Clearstream Affair" began, which exploded in 2006. This Second Affair, peripheral to the primary Clearstream Affair, accused several French political figures, industrial leaders and members of the secret services of maintaining secret accounts at Clearstream, which allegedly were used to transfer the kickbacks in the French-Taiwan frigates scandal.
ClearingClearstream often has been described as a bank for banks, as it practices what is called financial clearing. Basically, its duty is to record each transaction between the accounts of different banks, and using that data to calculate the relative financial positions of banks with regard to each other.
So a bank can just order a transaction between its own account and the other bank's account, in lieu of less secure methods such as carrying a case full of currency or securities around on the street; the bank merely transmits an order to Clearstream to credit/debit one of its own accounts and the other bank's account(s). This general system is in use between regular companies, and governments, and banks around the world.
The purpose of Clearstream is to facilitate money movements around the world, particularly by handling the resolution of sales of European stocks and bonds, in which market Clearstream was a major player, with an estimated 40% market share until May 2004 - together with its competitor Euroclear, the two firms settle 70% of European transactions [3]. Furthermore, in 2005, Clearstream was the 17th biggest employer in Luxembourg [4].
Clearstream does not hold a monopoly in this market: Euroclear, owned by Euronext, and SWIFT are competitors. However, SWIFT mainly assures routing, while only Euroclear and Clearstream supply cross-borders securities clearing and settlement services; Clearstream's quasi-monopoly is demonstrated by this European Union statement declaring that "Clearstream Banking AG is an unavoidable trader partner" [5].
Euroclear was created by JP Morgan in 1968 in Brussels (Belgium). By the end of 2000, JP Morgan had extricated itself from Euroclear, but JP Morgan still is one of the 120 international banks which own shares in Euroclear. In 2000, Euroclear processed 145 million transactions, dealing with a total of 100,000 billion euros [6].
Eurodollars Cedel (now Clearstream) and Euroclear were started to manage transfers of "eurodollars", U.S. currency kept in banks outside the United States. By the 1990s, the Federal Reserve estimated that about 2/3 of U.S. currency was held abroad as eurodollars.
Cedel and Euroclear later expanded into handling transfers of stock titles and other financial instruments. In 1975, several big Italian and German banks wanted to centralize their accounting, so other members of Cedel directly sent them transfers to the main branch.
"The Cedel council of administration -- its board of directors -- authorized banks with multiple subsidiaries not to put all their accounts on the published list. Backes and Gérard Soisson, then Cedel's general manager, set up a system of non-published accounts (...) Requests for non-published accounts came from some banks that were not eligible, but Soisson turned them down", writes Komisar [7].
Purchase Agreement
From experience: this is the international debt market equivalent of the issue management agreement. It is an agreement between the underwriter and the borrower.
A Purchase Agreement has several parts, which are the following:
1. Sale of Notes; Guarantee - it conveys that the Issue Manager agrees to purchase the Notes, which are irrevocably and unconditionally guarantted by the government, at a determined price.
2. Representations and Warranties - these are provisions made by the issue manager, he borrower and the guarantor. The reps of borrower are usually on the offering circular, legal basis of existence of the corporation, financial condition, authority to borrow, tax payments, legal form of the agreements, governing laws, non-existence of material default, ranking against other indebtedness with similar structure (pari passu), non-occurence of material adverse change and clear market. There are a number provisions but I mainly listed those that are mostly commercial. Our responsibility is to check if we have signed a waiver as regards to provision of other loan agreements that we have not satisfied or else, it may be a ground for default given our reps.
The other parts are the Indemnity and Contribution; and Currency and Withholding. Our legal group argues against the existence of this provision. Our responsibility, on the other hand, is to cap the provisions just in case the other party won't budge to remove this provision.
3. Covenants - This is on the undertaking of the borrower and the guarantor. Basically, it is on tax payment, notification in the event of material adverse change, no amendment to the Offerincg Circular that has a 9-month validity period (I still have to check if this is a standard market practice), qualify the Notes for offer and sale under the "Blue Sky" laws, Reg 144A, Reg S, not permitting Affiliates to resell any of the Notes during the two years after Closing Date and not addendum or enhancements to the subject-security.
As regards "Blue Sky", I remember a former colleague, Claire Armedilla, asking Jim Grandolfo of Allen and Overy on its definition. Basically, it is opening up the security to all provisions of the Regulation. It came from "giving the entire blue sky", which is the another version of "sky is the limit". I am not sure about this but I'll note it.
4. Closing - This part is about the purchase price and the underwriting fee. Last year, we received criticism on the fee we paid for the notes we issued last year. Actually, it was partly my fault because I didn't negotiate for reduction in fees given that we gave up the derivative instrument they attached to their proposal. I can't remember why I missed it. Maybe because we had to update the full powers and fast-track everything given that investors are usually on vacation on August. Nonetheless, we have adopted some policy changes that relatively expedite our financing process.
It is in this part where the custodians of the notes are determined and where should it be settled, such as the Euroclear System and Clearstream Banking. I'll discuss this in another post, once I am done with this.
5. Conditions Precedent - This provision is on deliverables such as legal opinion prior to and on the Closing Date, such as legal opinions, comfort letter from the auditor, no downgrade in investment rating and certifications.
6. Termination - Surprisingly, the Manager has the absolute discretion in termination the agreement in the event that its is impractible and inadvisable to proceed with the offering and delievry of the Notes. In one negotiation that we had a year ago, I remember that a move of 50 bps in the benchamrk rates would mean postponement but not termination.
7. Survival of Representations and Obligations - Self explanatory but the reps and warranties of the borrower and guarantor only survive up to the Closing Date.
8. Notices - Just the addresses.
9. Appointment of Agents for Service; Waiver of Immunity - Self-explanatory. Just in case we get sued, we authorize someone to receive the summons aborad on our behalf. Hehehehe.
10. Expenses - Self-explanatory. The Manager shall pay or cause to be paid the fees of the Manager’s legal counsel, the Manager's out-of-pocket expenses and those of the Manager’s legal counsel, the cost of financial printers, listing fees and Fiscal Agent expenses. Except as provided in this Clause 10, NPC, PSALM and the Republic shall pay all their own costs and expenses related to their obligations under this Agreement and the offering of the Notes.
11. Counterparts -This Agreement may be executed in any number of counterparts, each of which shall be deemed an original.
12. Applicable LawFrom investordictionary.com: A signed document stating the purchaser's agreement to buy and the seller's agreement to sell a specified property under stated terms and conditions.
My foremost responsibility is to review the commercial terms, while the Legal group assesses the legal terms. I try, as much as possible, to insure that the terms and conditions are improvements compared to our past transactions. In other words, we try to protect our corporation's ass as much as possible.
