Finance, Technology and Macroeconomics

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.

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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. General

16. 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 Issuer

20. Waiver of Immunity, Submission to Jurisdiction and Appointment for Service

21. Meetings and Amendments

22. Further Issuances

23. Severability - In case provisions of the Agreement are invalid, the parties shall endeavor to replace the invalid provision.

24. Governing Law and Counterparts

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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

posted by JD @ 3:32 PM