01 Jul 17 Secured Notes: a new financing tool for SMEs

By Agustín Cerolini and Tomas French

On June 15 the Argentine Securities and Exchange Commission (“CNV”, according to its Spanish acronym) enacted the General Resolution N° 696/2017 by way of which a new regulation was established for the issuance of Secured Notes by small and medium-sized enterprises (“SMEs”).

The new regulation creates the Secured Notes figure, substantially simplifying access to the public offering regime for SMEs when the issuance of their notes are secured by mutual guarantee companies, financial institutions or guarantee funds.

Secure Notes differ from non-secured notes essentially in that the economic and financial rating of the issuing SME is carried out by the guaranteeing entity, which will have a leading role in establishing if the issuing SME has the economic and financial capacity for the repayment of the note.

The referred shift of evaluation tasks onto the guaranteeing entities produces a considerable simplification of the listing requirements for this new type of notes.

In particular, the issuing entity is relieved from filing its financials with the CNV and from providing a risk factors analysis in order to be listed. In respect to placement, as only public auction or bidding is admitted, the engagement of a placement agent is not mandatory, being sufficient for a trading agent or stock market to intervene as an organizer.

Moreover, SMEs that issue notes under the new regime are exempted from complying with the CNV’s reporting obligations, having to file their financial statements annually rather than filing them on a quarterly basis. Also, the scope of the relevant events to be informed to the CNV are limited to insolvency events and occurrences affecting issuers activities. Lastly, the issuer is relieved from producing an Investor Protection Code or Code of Conduct.

We believe this new financing instrument will allow SMEs to access long-term and competitive financing through the capital markets, although a learning process will be necessary as the Argentine SME entrepreneur is not familiar with financing through the capital markets.

Benefits of SME Secured Notes:

• The issuing entity is relieved from filing its financials with the CNV and from providing a risk factors analysis in order to be listed.

• The engagement of a placement agent is not mandatory.

• The issuer is exempted of filing its financial statements on a quarterly basis.

• The issuer is relieved from producing an Investor Protection Code or Code of Conduct.