Introduction to Bonds and Their Types

Bonds

• Bonds are a way for companies to raise funds, functioning as debt securities representing loans.
• Bonds, like shares, have a nominal value and grant equal rights (non-administrative).
• Unlike shares, bondholders are creditors, not contributors. Bond funds are treated as loans within the company's assets.
• Bondholders receive fixed interest payments and repayment of the nominal value at maturity.

Bond Types

• Index-linked/structured bonds
• Convertible bonds
• Warrant Bonds
• Subordinated bonds
• Participating bonds

Bond Issuance Limits

• A ratio must be maintained between capital plus reserves and bonds issued (art. 2412, par. 1, 4).
• Bonds are limited to a maximum of twice the subscribed capital (not just paid-up capital).
• Guarantees for bonds issued by other companies are also included in the calculation.
• The ratio between bonds and capital plus reserves must remain consistent during the lifespan of the bond.
• If the limit is violated, the company cannot reduce its share capital (except for losses);
• The ratio is important to regulate the financial health of the company.
• This is to maintain stability, ensuring the company's capability to meet its obligations.

Bond Issuance Procedure

• Directors approve bond issuance, documented in notary minutes and the register.
• Bond issuance resolutions must be legally compliant.
• Information including company name, purpose, share capital, and existing reserves must be clearly disclosed.
• Bond registration details.

Convertible Bonds

• Convertible bonds allow holders to exchange them for company shares at a predetermined ratio.
• Bondholders cease to be creditors and become shareholders upon conversion.
• Issuing convertible bonds requires a separate increase in the company's share capital.
• Issuance conditions - previously subscribed share capital must be paid up; convertible bonds cannot have a lower value than their nominal value;
• Extraordinary shareholder meetings are needed for convertiible bond issuance decisions.
• A cap exists: convertible bond issuance is capped by the company and is typically for a 5 year timeframe.
• Pre-emption rights are protected for existing shareholders if convertible bonds are issued.
• Any capital changes (increase or reduction) will adjust the conversion rate.

Bondholder Organization

• Bondholders' meetings are crucial to decision-making about bond terms and conditions.
• Specialized representative bodies exist concerning these issues.
• Majority rules are important factor. Meetings decisions need to be registered;
• A Bondholders meeting (and their representative) has powers that allow them to address issues with the company as a collective group.

This quiz provides an overview of bonds, their functions, types, and issuance limits. Learn how bonds work as debt securities for companies and the rights of bondholders compared to shareholders. Explore the various types of bonds, including convertible and subordinated bonds.