Impact of COVID-19 on debt capital markets

By James Darcy, Benjamin Downie, Paul Cerché, Shivagar Siva
Banking & Finance Capital Markets COVID-19 Financial Services Project Finance

In brief 8 min read

We are actively engaged with advising clients on the implications that COVID-19 will have on debt capital markets. Based on our discussions with market participants, we set out below some key issues arising as a consequence of this global issue and our practical tips.

Separately, we have considered the impact that COVID-19 is likely to have on corporate financing transactions and offer both our analysis and practical means for responding in this related Insight.

Diversifying funding options

Treasury teams and boards will increasingly be focussed on access to capital during this time. Our experience through the GFC suggests that diversity of funding options is critical during times of economic uncertainty. The COVID-19 situation is likely to be no different. Issuance windows will come and go and market participants will need to be ready and nimble. Boards will expect a variety of avenues to access capital.


Issuers with existing debt programmes in place should consider if their program documentation is up to date, such that they can issue debt securities in a timely fashion in order to take advantage of any favourable market opportunities that arise.

Alternatively, it might be a timely opportunity for issuers who do not already have a debt program in place to consider setting one up in order to diversify funding options.

Together with our colleagues at Linklaters, we can advise on program establishments, including initial and ongoing disclosure requirements across all major markets and exchanges.

Conditionality of subscription obligations

Market disruption and market-out conditions to subscription obligations are designed to protect arrangers and dealers in the event of significant changes prejudicing the issuance of debt securities.

A subscription agreement or dealer agreement for a debt capital markets issuance will typically include a condition precedent to the subscription obligation that since the pricing date or the date on which the subscription agreement is entered into by the parties:

  • there has been no change in national or international financial, political or economic conditions that would materially prejudice the offering and distribution of the relevant debt securities; or
  • there has been no change in the condition, business, assets of the issuer or other key transaction parties (in the context of securitisations) that would have a material adverse effect.

A ratings downgrade condition may also be included, where as a condition to the subscription obligation, the issuer has not suffered a ratings downgrade since the pricing date or has been placed on creditwatch with negative implications.


These conditions typically relate to changes that occur within the period from the pricing of a debt security and the issuance (being the 'settlement period'). We note the following from a practical standpoint:

  • market participants should carefully consider the timing of transactions and whether settlement should occur immediately following pricing in order to minimise the time lapse between pricing and settlement; and
  • before pricing a deal, discuss the baseline position for the operation of the condition precedent – the provision should only apply to changes in the relevant condition prescribed and the commercial counterparties should be clear as to what the baseline position is at the time of pricing so that changes can be assessed from that point.

Parties should also carefully consider the drafting of each condition precedent.

Things to look out for include:

  • materiality qualifications;
  • whether the provision extends to future prospects (issuers prefer it not to cover future prospects, given the forward looking and subjective nature of that concept);
  • whether the condition precedent is to be determined subjectively (ie 'in the view of' the relevant dealer / subscriber) or objectively; and
  • the ratings position of the issuer at the time of pricing, to minimise the ratings condition being triggered within the settlement period.

Disclosure obligations – new issuances and new programs

The general test in Australia in respect of statements made in an information memorandum for a wholesale offering is that it must not be misleading or deceptive or be misleading or deceptive by omission.

Offering documents for debt securities in certain markets requires the inclusion of risk factors, being those that may affect an issuer's ability to fulfil its payment and other obligations under the terms of the debt securities. The inclusion of risk factors in an offering document is typical in markets such as in the EMTN market in Europe and Asia, the US Rule 144A market and, by convention, also in programs for unlisted or unrated issuers in the Australian medium term note market and in the securitisation market.


In light of COVID-19, while AMTN information memoranda do not usually contain lengthy risk factors as compared with EMTN offering circulars, issuers should still consider including disclosure in respect of COVID-19 if their business operations are likely to be directly or indirectly severely impacted. This disclosure can be included in issuance documentation rather than requiring a program update.

For issuers in certain industries and geographies impacted by health epidemics (such as SARS), it has been quite usual to include a risk factor identifying the actual and potential impact on the business of the issuer. With respect to SARS, this was particularly relevant for issuers in the transportation, travel and tourism industries. Similar considerations arise with respect to the impact of COVID-19, but given its potential economic impact will reach beyond transportation, travel and tourism industries, a broader set of issuers should consider disclosure on this issue.

For new issuances it will be important for issuers and arrangers to consider whether any general or specific risk factors should be included with respect to the actual or potential impact of COVID-19 on the issuer's business. In particular, issuers and arrangers will need to consider the relevant markets into which they will be offering the debt securities, as well as the specific requirements of the exchange on which the debt securities may be listed. 

In the context of term securitisation transactions, if an originator's business and the relevant asset class being securitised, such as SME, equipment, auto, credit cards and personal receivables, are likely to be severely impacted as a result of the virus, such disclosure should also be considered.

Disclosure obligations – listed debt securities updates and term securitisations

Debt securities are sometimes listed on an exchange, particularly those issued into markets in Asia, Europe and the US. A small number of issuances in the Australian wholesale debt capital markets are listed on the ASX Wholesale Debt Market. Each of these exchanges has its own initial and ongoing or continuous disclosure regimes, which will need to be considered by issuers in light of the impact of COVID-19 on their business.


For existing listed debt securities, ongoing consideration should be given to whether the direct or indirect impacts of COVID-19 require disclosure on the relevant exchange.

There is no 'one size fits all' answer to this, and careful consideration of the relevant rules of the exchange and the impacts for the issuer need to be thought through.

Roadshows for debt issuance and term securitisations

Generally, arrangers, dealers and issuers conduct roadshows in order to place debt securities to potential investors. Market practice has been for such roadshows to be conducted in person where possible, including travelling to investors domestically and internationally. Clearly, with travel bans imposed due to COVID-19, roadshows will need to be conducted electronically or via conference-calling facilities.


Parties should consider logistical issues that may arise with roadshows given COVID-19 and agree upfront the best way to conduct roadshows electronically (through platforms such as Net Roadshow) or via conference calls with investors. Arrangers should re-examine their current guidelines and ensure they address satisfactorily increased interactions which are likely to occur via electronic roadshows and investor conference calls. Additionally, disclaimers should be reviewed carefully in light of presentations being undertaken via electronic roadshows and investor conference calls.

Private warehouse securitisations

For private warehouse securitisation transactions, many of the issues relevant to corporate finance documentation will also be relevant to warehouse transactions.

These include:

  • MAE and other arrears and commercial triggers for stop origination/funding events, amortisation events, events of default and termination events entitling financiers to terminate and replace key transaction parties;
  • the breadth of market disruption and increased costs clauses and any obligation on a financier to mitigate such costs; and
  • disclosure obligations on any originator, seller and servicer; and other key transaction parties as to the impact of COVID-19 on their business and the asset backing the warehouse.

Parties should review the key provisions in the warehouse documentation and engage in early dialogue.

Originators should consider the relevant eligibility criteria and portfolio parameters that operate for the warehouse and any trigger events which may either need to be waived or for which additional headroom is required.

Servicing and origination guidelines should also be reviewed, in particular to determine if servicing and collection processes are flexible enough to deal with increased hardship applications, delinquencies and arrears.

For any warehouse which has an availability period which is up for extension, tenor and pricing are going to be key areas of discussion.

Consent solicitations and liability management exercises

If an issuer considers it may be necessary to extend the upcoming maturity of debt securities, or may need to amend a financial covenant or other term, consideration will need to be given both to the strategy for investor engagement and the process required to effect the amendment processes. Investor engagement will be dependent on information available to the issuer and its advisers as to the make-up of the investor group and the breadth and location of that group. There can be difficulty with identifying investors who hold debt securities that are cleared through clearing systems. On the process timing front, this will be impacted by the relevant clearing system requirements and the notice requirements in the terms of the debt securities.


A successful consent solicitation will require careful consideration of the strategy for conducting the exercise, including the nature of any consideration offered to investors. 

A clear timetable for the consent solicitation will need to be developed. To inform the timetable and process, careful review of the terms of the debt securities will be required, with focus on terms relating to noteholder resolutions and notice requirements.

Consideration should be given to any relevant securities laws of the jurisdiction in which the consent solicitation is being undertaken.

For debt securities which are listed, consideration should also be given to any relevant listing rules of the relevant exchange.

Allens, together with our Alliance partner Linklaters, is able to advise on the strategy and documentation for consent solicitations across relevant markets.

Navigating COVID-19

Head to our COVID-19 hub for more insights and analysis