Initiated by the Covid-19 pandemic and the financial consequences on many issuers, consent solicitation exercises and/or exchange offers have become more frequent across the world. Switzerland remains the world's largest wealth management centre for international assets. It is, therefore, no surprise that consent solicitation exercises, e.g., in advance of bondholder meetings, or exchange offers are also extended to Switzerland or Swiss investors, respectively. In light of this, the authors take the opportunity to highlight Switzerland's new prospectus regime and the impact on exchange offers in particular.
The new Swiss prospectus regime
On January 1 2020, the new Swiss Financial Services Act (the FinSA) and its implementing ordinance, the Financial Services Ordinance (the FinSO), entered into effect. The FinSA encompasses a new modernised prospectus regime for the Swiss capital markets. With certain customisations for debt and equity instruments as well as collective investment schemes, derivatives and structured products, the new Swiss prospectus regime is designed to apply uniformly to all financial instruments. The new regime came into effect on January 1 2020, whereby certain elements of the new regime apply with immediate effect; others only after certain transition periods.
New ex-ante approval requirement
Under the new prospectus regime, the FinSA and the FinSO require that, in principle, any prospectus be approved prior to (i) a public offering of securities in Switzerland, and/or (ii) the admission to trading of securities on a trading venue (exchange or multilateral trading facility) in Switzerland. The approval must be obtained from a so-called 'reviewing body' (sometimes also referred to as a review office), a new authority licensed and supervised by the Swiss Financial Market Supervisory Authority FINMA (FINMA). As a primer in the Swiss regime, the term public offering includes both public primary and public secondary offerings, as well as combinations of the two.
The prospectus approval requirement will only apply following a transition period expiring six months after FINMA has licensed the first reviewing body, but no earlier than October 1 2020. Per June 1 2020, FINMA has issued respective licenses to SIX Exchange Regulation (affiliated with SIX Swiss Exchange) and Regservices (affiliated with BX Swiss). Accordingly, the transition period expires on December 1 2020.
The notion of a public offering
The FinSA and FinSO define a public offering as any communication to an unlimited number of persons in Switzerland that (i) contains sufficient information on the terms of the offer and the financial instrument itself and (ii) is customarily intended to draw attention to a certain financial instrument and to sell it. The FinSA only regulates the offer to investors to acquire a financial instrument; it does not subject cash tender offers, i.e., the offer to existing holders to sell a financial instrument to the issuer or tender agent, to a Swiss prospectus requirement. Consent solicitation exercises without any elements of exchange and/or further investments by Swiss investors do not trigger a prospectus requirement under the FinSA, either.
However, issuers often combine consent solicitations, where the mere consent to change certain terms of existing securities is requested, with exchange offers. In exchange offers, existing investors also have an opportunity to invest in, or otherwise receive in exchange, other securities from the same issuer or any of its affiliates. In such a case, it has to be carefully analysed whether an investment decision is made by the investors or not. If this were the case, a Swiss prospectus requirement is triggered unless (i) the exchange offer qualifies as a mere private placement in Switzerland or, alternatively, (ii) an exemption from the prospectus requirement under the FinSA applies.
A private placement consists of a communication to a limited number of (potential) investors in Switzerland that are also approached by means typical for such private placements. If, for example, an issuer knows, or has a list of, the Swiss investors who hold its securities and sends a communication exclusively to them to inform them about the exchange offer, no public offering exists in our view. In contrast, if the securities are freely tradeable (e.g., because of their listing on the SIX Swiss Exchange or BX Swiss) and the issuer only sends the exchange offer information to the investors via the financial information systems (e.g., via SIX SIS), a public offer would be deemed to take place.
Exemptions from the prospectus requirement
Even if a public offering takes place or is envisaged in Switzerland, the FinSA provides for a set of explicit exemptions from the prospectus requirements, which are, to a large extent, modelled along the EU Prospectus Regulation as well as the previous practice and regulations of the SIX Swiss Exchange.
The exemptions can be divided into three categories, namely (i) exemptions based on the type of the offering, (ii) exemptions based on the type of the security and (iii) exemptions in connection with admission to trading. In connection with exchange offers, the exemptions based on the type of the offering and those based on the type of the security are of specific relevance.
Exemptions based on the type of the offering
Exempt from the prospectus requirement are public offerings (i) addressed solely to professional clients within the meaning of the FinSA (e.g., banks, asset managers, insurance companies, other entities under prudential supervision, enterprises and investment structures for high net worth individuals in each case featuring a professional treasury unit, or large corporates), (ii) addressed to less than 500 prospective retail investors (private clients) in Switzerland, (iii) with a minimum investment amount of CHF 100,000 (approximately $103,500) or the equivalent in a foreign currency, (iv) of securities with a minimum denomination of CHF 100,000 or the equivalent in a foreign currency, or (v) of securities that account for an aggregate investment amount not exceeding CHF 8 million over a 12-month period.
In the context of exchange offers and the reliance on the exemption of public offers to up to 500 retail investors in Switzerland, it should be noted that the analysis must be done on a look-through basis. This means that an exchange offer, e.g., to 20 private banks in Switzerland, could in reality be addressed to several thousand retail investors in Switzerland who hold the respective securities in their securities accounts with such private banks. Such ultimate holders are the investors relevant for the exemption. It may prove difficult in practice to establish the real number of retail holders of the securities in Switzerland. In such cases, a reliance on another exemption, e.g., by requiring minimum exchange tenders of CHF 100,000 per investor for eligible participants, is advisable.
Exemptions based on the type of the security
Further exempt from the Swiss prospectus requirement are public offerings in Switzerland of certain types of securities, including (i) equity securities issued outside the scope of a capital increase in exchange for previously issued equity securities of the same class (e.g., in connection with a share split), (ii) equity securities exchanged for securities of the same issuer or any of its affiliates, (iii) equity securities delivered as a result of a conversion of debt instruments of the same issuer or any of its affiliates, (iv) securities tendered in a public takeover, if the relevant disclosure is equivalent to a Swiss prospectus, or (v) securities offered within the framework of a merger, spinoff or transfer of assets, if the disclosure is equivalent to a prospectus.
Automatic approval of certain foreign prospectuses
If there is a prospectus requirement and no exemption applies under the FinSA, a noteworthy novelty of the new Swiss prospectus regime is the automatic approval of certain foreign prospectuses. If a prospectus has already been approved in accordance with the standards of certain recognised foreign jurisdictions set forth on the Swiss reviewing body's list, the requirement to have the prospectus reviewed and approved by a reviewing body may instead be met simply by filing the prospectus with a reviewing body and by publishing it.
Exemptions from ex-ante approval requirement
In order to guarantee that the Swiss bond market will retain its advantageous and historical short time to market, FinSA introduced an exemption from the ex-ante approval requirement for certain securities specified in the implementing ordinance. The FinSO names straight bonds, convertible and exchangeable bonds, bonds with warrants attached, mandatory convertible notes, contingent convertible notes (CoCos) and write-down bonds as well as structured products with a duration of 30 or more days as covered by the exemption, to the extent certain conditions are met. Such conditions include, most importantly, the requirement that a Swiss bank or securities firm issues a confirmation to the issuer that the most important information about the issuer (and, in the case of guaranteed debt securities, the guarantor), as well as the most important information about the debt securities, is publicly available at the time the prospectus is published. If an issuer is able to take advantage of this exemption, review and approval of the relevant prospectus by the reviewing body will only take place ex post rather than ex ante.
Contents of the prospectus
If a FinSA prospectus is prepared, it must be in an official language of Switzerland (German, French or Italian) or in English. The specific content requirements are outlined in the annexes to the FinSO. Although based on the previous practice and regulations of SIX, the FinSO also provides some additional requirements, such as the requirement to include an easily comprehensible summary or the requirement to include a disclaimer if benefiting from an exemption from theex ante approval requirement (see above). In addition, the FinSA now explicitly permits that certain information may be incorporated into the prospectus by reference, provided that such information has been published prior to, or concurrently with, the relevant prospectus.
Basic information document
Whenever financial instruments other than shares, straight bonds or other financial instruments without a derivative character are offered to retail investors (private clients) in Switzerland, the manufacturer of such financial instrument (usually the issuer) has to prepare a so-called basic information document (Basisinformationsblatt, also referred to as Swiss KID) containing all information for the investment decision in an easily comprehensible way. This requirement may also be met by a European key information document (KID) under the packaged retail and insurance-linked investment products, or Priips regulation.
Position paper on selling restrictions
If an issuer decides not to extend the exchange offer to Swiss investors, adding certain selling restrictions in the exchange or tender offer memorandum is advisable. The leading Swiss banks and the primary Swiss law firms active in the capital markets have prepared a 'position paper on legends and selling restrictions for cross-border offerings of securities (excluding collective investment schemes and structured products) into Switzerland under the prospectus regime of the Swiss Financial Services Act'. The paper provides for a brief overview of the Swiss prospectus regime, features a checklist for determining prospectus requirements under the FinSA, and sets forth applicable legends and suggested selling restrictions.
René Bösch is a partner in both the banking and finance and capital markets teams. An expert in capital market transactions and financial markets regulation, he is particularly focused on debt capital market transactions and the structuring of equity-linked and regulatory capital instruments. He also advises clients on banking law and financial services regulation, including recovery and resolution planning.
Benjamin Leisinger is a partner in the banking and finance and capital markets teams. His practice focuses on banking, finance and capital markets law. His areas of expertise also include corporate and commercial law. Benjamin Leisinger regularly advises Swiss and in-ternational financial institutions in financing transactions, in particular in the capital markets, and regarding regulatory matters, including on questions related to licensing and regulatory capital.
Pierina Janett-Seiler is an associate in Homburger's banking and finance and capital markets teams. Her practice focuses on advising Swiss and international financial institutions in financing transactions, in particular in the capital markets, and regarding regulatory matters.