A Bond is simply a debt obligation; a type of loan. Bonds are created using a legally binding agreement which evidences the existence of a debt between a borrower (the Issuer) and one or more lenders (Bondholder(s)). The agreement (usually called the Bond ‘instrument’) sets out the terms of the loan including the loan amount, interest rate and repayment dates.
A “mini-bond” is the name given to a bond which is issued by an unquoted company, is not tradeable on any regulated market and, frequently, is not even legally transferrable and so must be held by the Bondholder for the entire specified term. Consequently, mini-bonds have a significantly higher risk profile than other types of listed bond.
“Mini-bonds” cannot be transferred to someone else, either legally because their terms prohibit it or practically because there is no ready market for their sale and purchase. In contrast, retail corporate bonds and government gilt-edged securities are freely tradeable instruments with a liquid market.
Mini-bonds are much higher risk investments. Unquoted Bond issuers, and the Bonds themselves, are generally not regulated by the FCA or any equivalent regulator and investments in them are not protected by the Financial Services Compensation Scheme. Capital invested in “mini-bonds” is at risk of partial or total loss.
A debenture is a form of security, usually granted in favour of a security trustee to hold on behalf of bondholders, which generally attaches to all the current and future assets of the issuing company. In the event of a default (such as non-payment of interest or capital), the security trustee can enforce the security and take control of the issuer’s assets in order to sell them for the benefit of the bondholders.
Any individual who is over the age of 18, or a trust, company, the retail sector or charity that is not prevented by the laws of its governing jurisdiction from applying for or holding the bonds. Investors must also fall within one of the following categories:
(i) certified high net worth investors (as per COBS 4.7.9R);
(ii) certified sophisticated investors (as per COBS 4.7.9R); or
(iii) self-certified sophisticated investors (as per COBS 4.7.9R);
and for whom an investment in the Company can be assessed as being appropriate in light of their knowledge, experience and expertise.
We recommend all investors speak to an advisor who is authorised under the Financial Services and Markets Act 2000 and specialises in investments of this kind.