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01 February 2015

New Draft Polish Law on Bonds

The Polish parliament is working on a new law on bonds that could make obtaining capital market financing in Poland easier.

The debt securities market in Poland

According to the draft assumptions, the new law on bonds should ease growth and support development of the long-term non-treasury debt securities market in Poland. It should also boost the confidence and safety of the market by removing certain doubts about the interpretation of the existing law on bonds.

Currently in Poland the long-term non-treasury debt securities market is inadequately developed, especially in comparison to well-established traditional bank loan and stock markets. This in particular relates to non-financial companies’ bonds. The goal of the new law is to support development of the bonds market in Poland and to make it a complementary source of financing in relation to the bank loan market.

Brief overview of the main changes

The new draft law on bonds introduces new regulations and constructions to the Polish bonds market.

Bondholder meeting – new institution
The current law on bonds does not regulate the activities of bondholder meetings. But such an institution has recently become a common feature in the terms of the issuance of bonds, based on the solutions used in other countries. The new draft law describes this institution in greater detail and grants the meeting the power to amend the terms of bonds. Currently there is serious doubt concerning amendment to the terms of bonds after their issue. Therefore, such a change is much needed. In practice, bondholder meetings rarely pass amendments to the terms of bonds.

The rules for the functioning and powers of the meeting are generally similar to those of the shareholders’ meeting provided for in the Polish commercial companies code.

Subordinated bonds – a new type
Currently subordinated bonds are only used as an instrument for increasing the bank’s ancillary funds. The new law provides for the possibility to issue subordinated bonds also by issuers other than banks. Bondholders of the subordinated bonds would be satisfied solely before holders of equity instruments. Claims resulting from such bonds would be subordinated to other creditors’ claims against the issuer, and bondholders’ receivables would be paid after other creditors are satisfied.

Perpetual bonds – a new type
The main features of this type of bonds would be no redemption and the issuer’s obligation to pay interest indefinitely. However, in terms of the issue, the issuer may reserve a right to redeem the bonds (if exercised, the perpetual bonds would become bonds with a tenure of at least five years). Additionally, perpetual bonds may become due and payable if there is a delay in interest disbursements, if the issuer is declared bankrupt or if liquidation of the issuer opens. Currently, the right of issuing perpetual bonds is reserved only for banks.

Removing doubts in interpretation
The draft clarifies doubts currently surrounding the issuing of bonds governed by Polish law by non-Polish entities. For instance, the draft provides that sole jurisdiction over any disputes relating to such bonds would rest with the District Court for Warsaw (Śródmieście).

The draft provides for the possibility of bond issues by SPVs whose sole object of operation is acquiring financing through bonds issuance.

Lastly, the draft provides for the possibility of issuing bonds secured with collateral established only after the issuance.

Status of the law
The new draft law on bonds is before the Polish parliament and should be on the voting agenda in late 2014 or early 2015.

The ultimate goal of the new law is to support the development of the bonds market in Poland and to make it a source of financing that complements the bank loan market.

author: Marcin Antczak