In January, we advised Trainline on the issuance of their debut £150 million convertible bond due 2026. This transaction was notable for a number of reasons, particularly for being the only convertible bond issued by a UK corporate in 2021 and the first since Ocado in June of last year.
Convertible bonds hard-wire in the option for bondholders to convert their bonds into a fixed number of shares at a fixed price, such price being subject to customary adjustments that protect the value of the conversion option. These adjustments include, for example, adjustments compensating bondholders for the distribution of value to shareholders via dividend payments or distributions at too great a discount, inter alia.
A key distinction between convertible bonds and standard stand-alone corporate bond issuances is the time frame for execution. Convertible bonds are often issued without a prospectus or disclosure document, relying on a knowledgeable investor base that does not need any form of long-form offering document and public offer exemptions, meaning they can be agreed and priced in time frames not much longer than a week. To qualify for payments to be free of withholding tax via the so called “quoted Eurobond exemption”, a listing wrapper is generally put together in due course to facilitate the listing of the bonds before the first interest payment date on a convenient exchange, in our case the Frankfurt third market.
From a redemption perspective, Trainline’s convertible bond included customary issuer redemption rights, allowing Trainline to redeem the bonds if the value of the underlying ordinary shares is higher than a specific value for a specified period of time (NB if the option is too much in the money for an extended period), or if 85 per cent of the bonds had already been redeemed or converted. A bondholder redemption right upon the occurrence of a change of control was also included, along with a share settlement option allowing Trainline to satisfy its settlement or redemption obligations at maturity with shares (rather than cash) if it so chooses. Although share settlement options are rarely used in practice, their inclusion provides issuers with maximum flexibility at maturity.
Trainline’s convertible bond was verywell received by investors meaning it could be priced at the issuer-friendly side of the marketing range. The conversion price was also set well above the all-time highest price of Trainline’s shares.
While corporate clients continue to monitor their balance sheets and the impact of the coronavirus pandemic, convertible bonds may be a useful product to consider. If you would like to discuss any of the above further, please feel free to contact Peter Allen (Co-head of International Capital Markets) or Laura Clark-Jones (Associate, Corporate Finance).