What are debentures?
Negotiable obligations (or debentures) are fixed income securities (given that their payment schedule is known beforehand) which private companies used to issue debt.
Investors who acquire these securities become creditors, who have the right to future capital and interest repayments according to the contracted terms. These investors also have the right to sell these securities in the secondary market, unless it is specified otherwise.
Who can issue these securities?
- Civil partnerships
- State companies
How can they be issued?
The issuance can be done individually or under a “Global Program” through which financing can be obtained in different stages. Terms tend to vary from issuance to issuance. The securities can be either simple or convertible negotiable obligations (NOs from now on), with the latter including the possibility to obtain stock instead of cash as a means of payment. At the same time, NOs can specify certain assets as collaterals or offer no guarantee. It is also possible to include guarantees provided by third parties such as financial entities or reciprocal guarantee companies.
How does the company formalize the issuance?
- In the case of corporations, LLCs and cooperatives, the issuance of simple NOs can be decided in any ordinary general meeting of shareholders. Only public corporations are allowed to decide on the issuance of convertible NOs through an ordinary general meeting.
- Civil partnerships require bylaw approval.
The Company can delegate to the issuance’s administrative body:
a) Simple NOs: definition of all or some of the issuance’s terms within the authorized amount. This includes time of issuance, price, issuing mechanism and payment conditions.
b) Convertible NOs: time and price of issuance, issuing mechanism, interest rate, conversion factor.
How does the company make the issuance known to the public?
The company shall elaborate an announcement to be published in an official bulletin and submitted to the Comisión Nacional de Valores (CNV or National Securities Comission). The announcement should include dates of general stockholders meetings and governing body meetings in which conditions were determined; information about the company and its activities; share capital and new worth structure; size and currency of the issuance; any past issuances; repayment conditions, among other terms.
What steps should a company take in order to issue NOs?
Issuing securities requires that the company obtain approval from the CNV as well listing approval from a market. In order to do so, the company must present before CNV all relevant information.
The parties involved in the process include an issuance organizer, NOs placement company and rating agency (when corresponding), each of which help the company fulfill every requirement.
Which documents are published as a part of the process?
The organizer helps the company in the development of the prospectus, which outlines the process and characteristics of the issuance. This document is made available to investors in order to inform them of the company, its projects, and the offered securities. It must contain all details of the proposed NOs such as payment schedule, currency, tax implications, risk ratings, etc.
If the issuance is part of a series, a “Global Program” which describes how the company expects to issue the total amount authorized within such program should follow the prospectus.
Do small and medium enterprises have any facilities when financing with NOs?
Small and Medium enterprises (SMEs) in Argentina can access to up to ARS 100 million under a simplified process which demands for less information than is required to the rest of issuers.
Those SMEs that hold guarantees from reciprocal guarantee companies can access the CNV Guaranteed SME Negotiable Obligation program through an entirely online application process, without the need to present any paperwork to the governing body.