Mini-bond masterclass

Mini-bond masterclass

Ben Devons, partner at Marriott Harrison LLP, gives the lowdown on mini-bonds and says that they can serve as an attractive way for companies to raise money.

What is the difference between a retail bond and mini-bond?

A bond is a debt instrument under which an investor lends money to a borrower, usually a corporate entity.

Mini-bonds (sometimes referred to as unlisted retail bonds) are unlisted and are not therefore traded on a stock exchange. They are also usually not transferrable. As there is no market on which mini-bonds can be traded, the amount invested is only repaid on maturity of the bonds.

Potential mini-bond investors are typically provided with an offer document or information memorandum which sets out the terms of the bonds. Generally mini-bond offers are structured so as to avoid the need for a prospectus.

Retail bonds are listed and traded on a stock exchange. As such, they must comply with the rules of the particular exchange on which they are listed. All retail bonds intended to be listed on the London Stock Exchange, for instance, will require the issue of a prospectus which complies with the UK Prospectus Rules

Both mini-bonds and retail bonds must be marketed in compliance with the UK’s financial promotion regime under the Financial Services and Markets Act 2000.

Why do companies issue mini-bonds?

As early stage growth companies often find bank finance difficult to obtain and retail investors now seek a better return than low-yielding bank deposits, mini-bonds can serve as an attractive method for companies to raise money. Typically, we have seen the coupons offered on mini-bonds fall in the range of 6–8% per annum.

Mini-bonds are not traded on a stock market so they tend to be subject to less regulation and, as a result, where relatively small amounts are being raised, their issue tends to be more time and cost effective than retail bonds.

Mini-bonds can also raise a company’s public profile. For example, sometimes companies include non-cash rewards in lieu of interest or as an additional perk under the offer. The Mexican restaurant chain, Chilango, raised over £2m and anyone who invested more than £10,000 was entitled to one burrito a week fo

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About the author:

Meet Emma:

1.Banking and finance lawyer with experience in derivatives, debt capital markets, securitisation and structured finance in London and Paris

2.Likes ballet, playing the harp and holidays

3.Thinks the law is always changing!

Emma trained and qualified at Allen & Overy LLP and worked in their derivatives and structured finance teams in London and Paris.  She then joined the foreign exchange prime brokerage legal team at Deutsche Bank before spending 4 ½ years with Crédit Agricole CIB advising the fixed income and derivatives desk.