The Capital Markets Board of Turkey (“CMB”) published the Draft Communiqué on Committee of Debt Instrument Holders (“Draft Communiqué”) pursuant to the Article 31/A(1) of the Capital Markets Law dated December 30, 2012 numbered 6362 (“Law No. 6362”) on its website on April 22, 2020. Pursuant to the Draft Communiqué, the issuers have to obtain the approval of a committee formed by debt instrument holders to make changes that may affect the investors’ investment decisions regarding the interest, maturity, principal of the debt instrument, and other conditions that set out in the prospectus or issue document, or the primary provisions that will be adopted by the CMB. In this information note crucial points regarding the Draft Communiqué will be reviewed.
General and Tranche Committee
The Draft Communiqué sets out two type of committees which have supporting roles regarding each other. Tranche Committee refers to a committee resolves to approve or reject the changes that may affect the investors’ investment decisions regarding the interest, maturity, principal of the debt instrument, and other conditions that set out in the prospectus or issue document, or the primary provisions that will be adopted by the CMB in line with the Draft Communiqué and the principles stipulated in such prospectus or issue document. For each tranche or specific multiple tranches a separate Tranche Committee shall be formed by the relevant tranche debt instrument holders.
On the other hand, a General Committee which is formed by all outstanding debt instrument holders of the issuer shall decide on the final conclusions regarding the examination requests made by the tranche debt instrument holders claim that such changes approved by the Board of Directors of the issuer and concluded by Tranche Committee will affect their rights adversely. General Committee shall resolve with the qualified majority of the debt instrument holders that refers to a minimum two-thirds of the nominal value and its decisions shall be binding and final upon tranche debt instrument holders.
In cases where the issuer requests to change its commitments regarding its financial or operational conditions stipulated in the prospectus or issue document within the maturity term, the change has to be approved by Tranche Committee with the votes of committee members which represents of more than half of the nominal value of the outstanding debt instruments. The issuers also obligated to obtain approval of the General Committee to establish additional securities in favor of the investors of the instruments issued abroad.
The holders of backed securities and holders of the debt instruments covered by security management agreements shall form a separate committee, and the holders shall not be entitled to participate in the General Committee for their covered debt instruments. Yet, in cases where their rights are affected adversely due to the establishment of new securities in favor of other tranche holders, the holders shall be entitled to use their rights regarding the General Committee.
Tranche Committees may be chaired by qualified representatives that has not been convicted by certain crimes such as official misconduct, or bribery and is capable of handling conflict of interests between the issuer and the debt instrument holders in line with the principle of equal treatment. The requirements, duties, powers, and payments terms regarding representatives have to set out in in the prospectus or issue document. Tranche Committees entitled to elect a representative with the votes of committee members which represents of more than half of the nominal value of the outstanding debt instruments. Temporary representative may be selected in in the prospectus or issue document.
Unless otherwise is adopted in the prospectus or issue document, committee meetings primarily will be conducted physically. Yet, the listed public companies and the issuers that offered its debt instruments to the public have to provide electronic facilities for committee meetings among the physical option. The committee is entitled to resolve by circulating the decision physically or electronically. The issuer’s and its related parties shall not be entitled to attend to and vote in the committee meetings for their debt instruments.
Default of the Issuer
Pursuant to the Draft Communiqué, the issuer shall specify its obligations and liability arisen from the debt instrument, events of default, and repayment schedule in the prospectus or issue document of the relevant debt instruments.
In cases where terms of debt instrument are changed after an event of default has been occurred, all enforcement proceedings and related interlocutory injunctions resulted from such event of default shall be suspended with the change and statute of limitations regarding such event of default shall not run.
To protect the rights of the debt instrument holders, the issuer shall not be entitled to pay its other debts to third parties early and to buy back or redeemed early the debt instruments without Tranche Committee’s approval on the change of the primary provisions of the debt instruments in cases where the issuer is not or explicitly will not be capable to fulfil its payment obligations.
Prior to the Draft Communiqué, the Article 31/A(1) of the Law No. 6362 which introduced the committee of debt instrument holders as a new element for capital markets in Turkey entered into force by the amendments made by the Law Amending Banking Law and Other Laws dated on February 25, 2020 numbered 7222 (“Law No. 7222”). According to the Article 31/A(1) of the Law No. 6362, the holders of an issuer’s outstanding debt instruments shall constitute a committee. Additionally, each tranche debt instrument holders may constitute a separate committee. Moreover, the issuers had been obligated to specify principles and requirements regarding the procedure of calling a committee meeting by the Board of Directors of the issuer or debt instrument holders and taking committee resolutions in the prospectus or issue document of the relevant debt instruments.
Unless the CMB, the prospectus or issue document sets a higher quorum, the committee shall resolve with the majority for both General and Tranche Committees. Yet, the resolutions which resolved with the qualified majority of the debt instrument holders that refers to a minimum two-thirds of the nominal value shall be binding upon all debt instrument holders including the opposed and the absent holders that has been duly invited to the meeting.
Author: Aslı Naz Ünlü