On 1 July 2015 the new Polish Bond Act from January 2015 (the "New Bond Law") entered into force, replacing the Bond Act from 1995. The New Bond Law is an adequate response to the development of the bond market over the last twenty years. Few years after the transformation of the Polish economy the Bond law from 1995 introduced a flexible formula for raising financings under Polish law and was of great help to Polish enterprises creating an alternative to bank loans and opening the possibility to raise financings from the Polish capital market. The new law does not introduce a revolution on our capital market, but constitutes a significant improvement of the Bond Act from 1995.
Basic concept of a "bond" in Poland
The Polish law is based, inter alia, on the concept of closed list (numerus clausus) of securities. On the other hand the stock exchange regulations refer to trading in securities and derivatives. This means that a financial instrument, which is not a derivative, must have been qualified as one of the clearly defined types of securities to be listed on the Warsaw Stock Exchange. In addition to the above certain financial institutions, for example Polish pension funds, are allowed to invest in debt securities, but would not be able to provide other debt or invest in debt financial instruments, which are not securities. The Polish law does not recognize other debt securities, like notes or similar securities. The Polish law recognizes bills of exchange, but these securities are not suited to raising financings (and are tradable of the stock market under Polish law). Therefore it is important to provide, under Polish law, flexible options for Polish issuers to raise financings and attractive, broad list of assets for Polish investors.
The Bond Law from 1995 already offered to the Polish market a very flexible debt security, encompassing obligations to pay certain amounts or other, also non-monetary obligations of any type. Fixed income, variable interest rate and zero-coupon debt securities may be issued as Polish corporate or municipal bonds. Also convertibles and exchangeable bonds may be issued; in Poland convertible or exchangeable means convertible into new shares issued for the bondholders and paid in by conversion of the debt into equity or securities exchangeable for already existing, issued shares owned by the issuer of exchangeable bonds (exchangeable bonds may actually include instruments exchangeable into securities other than shares or for other rights). Special types of bonds, as the revenue bonds are also available for municipalities and certain enterprises, including these engaged in public-private partnership projects. All types of bonds available under the Bond Law from 1995 are also available under the New Bond Law.
The New Bond Law, what is actually "new" ?
One of the issues difficult to solve under the Bond Law from 1995 was a bond issuance via SPV. The Polish issuer was capable under the Polish law to issue bonds to the SPV created in connection with raising financings, but the SPV (neither Polish nor incorporated in any other jurisdiction) could not issue bonds under Polish law. This has not been possible because one of the precondition to issue bonds under the Bond Law from 1995 was that the issuer should be an enterprise conducting its own economic activity. This has been fixed in the New Bond Law, which now allows to issue corporate bonds by SPVs and also clearly provides for the possibility to issue bonds under the New Bond Law by companies incorporated outside Poland. Therefore, a Polish issuer offering corporate bonds via SPV is no longer forced to use foreign law for the debt security issued by the SPV and offered to the investors.
The Bond Law from 1995 provided for the possibility to issue covered bonds, but did not provide for the regulation concerning the collateral agent. Various structures have been developed to facilitate the enforcement of collaterals, but these unfortunately did not offer enough legal comfort and thus limited the usefulness of the covered bonds. This has been refined in the New Bond Law and the institution of the collateral agent allows to efficiently enforce various types of collateral. Mortgages, registered pledge, guaranty and other types of collateral may be now enforced by the collateral agent acting in its own name, but on behalf and for the bondholders.
Under the New Bond Law the bondholders, if the terms and conditions of the bonds include that option, may organize themselves and take binding decisions in the form of the resolutions of the meeting of the bondholders. This allows to changes the terms and conditions of the bonds, or decide whether a default under the terms of the bonds shall (or shall not) trigger the early redemption of the bonds and accelerate the repayment of the financing.
The ability to renegotiate the terms of the bonds is an important feature allowing the issuers and bondholders to avoid triggering events of default, if there is a possibility to reach an agreement and restructure the debt. Therefore the Polish bonds may be more flexible and may better compete with the bank loans as a form of financing of Polish enterprises. On the other hands, certain events of default may be triggered by individual bondholders based on their disputable assessments. Therefore, in several instances it is advisable that the final determination, whether an event of default triggered the early redemption of bonds, shall be made by bondholders representing the majority of the creditors.
The New Bond Law continues to offer a very broad scope of bonds as instruments for raising financing and improves the old legal framework . It also addresses the key concerns of the market participants – issuers, investors and bankers or brokers. The bond market in Poland is developing very quickly and the improvements of the legal basis for issuances of bonds shall facilitate this development. The introduction of the collateral agent created a new business for the Polish legal community and allows to clearly define and structure various roles and fully service the bond issues.