Buyside body wants changes in how US bonds are sold

IFR 2347 - 22 Aug 2020 - 28 Aug 2020
4 min read
Paul Kilby

The Credit Roundtable, a buyside industry group, is pushing for improvements and a standard play book for how deals are sold in a US high-grade primary market that has seen record volumes this year.

In a document released last week, the group – which counts large buyside firms such as Franklin Templeton, Vanguard and T Rowe Price as members – called for the establishment of "best practices" to fix glitches in the new issue process that cannot be solved by technology alone.

As volumes in the US bond market grow in leaps and bounds, investors are asking for more time to assess deals so they can make informed investment decisions.

The Credit Roundtable listed a number of recommendations designed to increase transparency and guarantee consistency in how information is disseminated over the course of a deal's pricing from announcement to post pricing.

The suggestions included making prospectuses and offering memorandums available when the deal is announced as well as other terms, including initial price thoughts, CUSIPs, mandatory redemption terms, a full list of underwriters, maturity and settlement date.


Jonny Fine, head of investment-grade syndicate and FIG DCM at Goldman Sachs, said much of what The Credit Roundtable wants is largely achieved under normal circumstances.

"In 95% of the deals, we do all of this," he said.

And DirectBooks, a web-based platform to optimise communication during the bookbuilding process, may help to address some of the Credit Roundtable's concerns when it is launched in the fourth quarter.

"I completely understand why they want as much as this information upfront as they possibly can," said Fine. "DirectBooks will be a very helpful solution as are other technologies to create structured data dissemination. That will enable a lot more of this information to be readily available and easily accessible for the investor base."

Yet while bankers say The Credit Roundtable checklist is largely already standard practice – with the odd exception – investors say there remain inconsistencies in how underwriters work with the buyside and in the dissemination of information such as book sizes and IPTs.

“Often it works just fine, but there are times when it doesn’t," said David Knutson, head of credit research for the Americas at Schroders, which is also a member of The Credit Roundtable.

"You don’t have a speeding limit for everyone. You only have a speeding limit for the people who want to drive too fast. So let’s establish a speeding limit here.”

One of the major sticking points has been ratings on bonds, especially those vulnerable to downgrades in the wake of acquisitions.

The Credit Roundtable is asking for rating agencies to provide ratings within 15 minutes of the deal announcement.

“The rating agencies generally try to work with syndicate well, but there is no rule," Knutson said.

"There have been deals that have launched and the ratings have changed while the deal is in the market. There have been deals launched, priced, then allocated and then their ratings change.”


Yet some of what The Credit Roundtable wants may require regulatory changes to make standards enforceable.

One example could be an issuer that may want to announce a deal early in a busy market, rather than wait for the filing to appear on the SEC website, Fine said.

Under current rules the borrower is under no obligation to do so at the time of announcement as long it has an active shelf with the SEC.

"There are no regulatory or legal reasons why the company cannot do that, and ultimately because investors will still receive all the offering documents before they accept allocations, they are working within the confines of what is permissible from a regulatory perspective," he said.

Nor can underwriters on SEC registered deals provide book status in writing – only verbally.

"There are some things that the Roundtable would like that are not permitted by regulations," said Fine.

Even so, rather than rule changes, the Roundtable is proposing that all parties involved in the new issuance process agree to "best practices and standards that are blessed by regulators and that we all try to adhere to these principals,” Knutson said.