EP65 · Economy · first published 2021-02-23

The Bar Association's Bond Day | Tero Tuomisto and Sami Miettinen | Negotiator 65

A recording of the closing presentation at the Finnish Bar Association's Bond Day: the four segments of Finland's bond market, the role of the bondholders' representative, and the written procedure that amends terms in 15 banking days. The cases are Kojamo, Containerships, Stockmann and Elematic, where creditors cut their own claim from 35 million to 15 million to save the company's value without bankruptcy. It closes on direct lending and the tokenisation of commercial real estate debt.

Sami Miettinen · Sections: AI and the Economy

The Bar Association’s Bond Day | Tero Tuomisto and Sami Miettinen | Negotiator 65

Summary: A recording of the closing presentation at the Finnish Bar Association’s Bond Day: the four segments of Finland’s bond market, the role of the bondholders’ representative, and the written procedure that amends terms in 15 banking days. The cases are Kojamo, Containerships, Stockmann and Elematic, where creditors cut their own claim from 35 million to 15 million to save the company’s value without bankruptcy. It closes on direct lending and the tokenisation of commercial real estate debt.

A note on reading this, and disclosures: This episode is not an interview but a recording of a Finnish Bar Association training day run by Alma Talent, at which Sami Miettinen gave the closing presentation and Tero Tuomisto — a partner at Castrén & Snellman who heads the firm’s banking and finance practice — chaired the day and summed it up at the end. Miettinen states his interests at the start of the talk: he is a member of the advisory board of Realstocks.io and a former CEO of Nordic Trustee, and he presents Realstocks’ business model in the episode. The figures and market conditions are those of February 2021.

Why this episode is worth reading

Most talk about bonds concerns issuance: how a bond gets sold. This presentation concerns what happens afterwards — when terms have to be amended, when a company gets into trouble, when value has to be saved without bankruptcy. It is the part of finance that is rarely visible from outside, and where the legal structure decides whether the outcome is negotiable at all.

Tuomisto’s framing captures the shift the field has been through:

Unlike, say, ten years ago, when people were afraid of amendments to bond terms — fortunately the situation is no longer the same; there are ways it can be handled. We have a large number of successful arrangements in which bond terms have been amended on a very substantial scale.

Three companies, three lessons

Miettinen starts from three issuers representing different quality tiers.

Kojamo — how quality is rewarded. The company (formerly VVO) was Nordic Trustee’s first mandate in Finland: a seven-year bond, real estate security, a coupon of 3.25 %, size 100 million. That was an exceptionally low rate at the time.

Fast-forward to today and this is a company listed on the exchange issuing 500-million European bonds under an EMTN programme at a rate comfortably below 2 per cent.

Along the way the maturity moved from seven years to five and back to seven — and the security disappeared entirely. Miettinen’s word for this is going up: when things go well, let them. Not even Covid broke the run.

Containerships — high yield works on the way up too. A textbook American-style high yield bond: starting at 7.5 %, then cut to 6 %. The story ended in an acquisition by French buyers — and the bond served that development.

Stockmann — why the structure has to be in place beforehand. This is the most instructive case, because the company first did it wrong and corrected in time:

It is worth noting about Stockmann that it too started in a fairly raw style — just issuing bonds on so-called old public documentation, with no security of any kind and no agent structures. But then, wisely, before this crisis it moved to the bondholder representation model.

When Covid arrived, that decided matters: a restructuring of a debt package worth hundreds of millions was carried through — all under a listed company’s market abuse rules. Without a representation model built in advance it would, in Miettinen’s words, have been “pretty grim”.

The four segments of Finland’s bond market

Two observations stand out.

Municipalities make a profit by borrowing. Miettinen recounts a conversation with a municipal manager who said: “let’s print some more money” — because at a negative rate every issue turns a profit.

The hybrid bond is a Finnish peculiarity. In the other Nordic countries this segment barely exists; there, straightforward debt is issued. In Finland the segment is strong — and Miettinen offers no explanation, simply notes it as a phenomenon.

The Covid year split the market in two: Kojamo, Nokia, UPM and Stora reached the market without difficulty, while for small issuers it was very hard.

The trustee structure: the same idea from sovereigns to corporates

Miettinen draws a useful parallel here that is rarely spelled out.

Sovereign bonds now always carry a collective action clause, under which 75 per cent of holders can amend the terms. And from that follows a thought experiment he deliberately leaves open:

Central banks are now the largest owners, so we will soon be in a situation where central banks can amend their own state’s terms — which is a genuinely interesting situation, if we go there.

In corporate bonds the same role belongs to the trustee (Nordic Trustee, Intertrust), representing the investor collective. The thresholds are typically 50 % for small amendments and two thirds for large ones — and here Miettinen gives the issuer a counter-intuitive piece of advice:

Bigger percentages just shoot the issuer in the foot. When you do these issues, a smaller percentage is actually better, because it brings more flexibility in these amendment situations.

In other words: a high decision threshold feels like creditor protection but is the issuer’s risk, because it makes rescue difficult at exactly the moment rescue would be in everyone’s interest.

The same structure works in three markets: listed bonds (Nasdaq, Euroclear book-entry securities), private placements and direct lending.

The instrument’s life cycle and the written procedure

In Miettinen’s framing a debt instrument has three phases of life:

1. Before disbursement — the trustee approves the conditions precedent, the terms on which investors’ money is released to the company at all.
2. After issuance — covenants, payments, and any amendments and votes conducted by written procedure.
3. At repayment — payments, adjustments, release of security.

The mechanics of the process are surprisingly mundane:

• duration 15 banking days plus preparation
• for a listed bond, handling of inside information
• the vote is run in a database such as Stamdata
• ~50 % suffices for small amendments, two thirds for large ones
• once passed, the original terms are amended to match the decision

It is not as though people used to gather collectively in the Kämp mirror hall to decide on bond terms — but nothing of that sort has happened for a long time.

Miettinen’s recommendation is categorical and applies to healthy companies too:

Even good firms should always, in my view, put an agent in between. — If those structures are not there, it is quite hard to change anything at all.

One qualification on the representative’s discretion. Miettinen recounts approving, as CEO of Nordic Trustee and without a written procedure, an increase in the interest rate floor — a floating rate, but at least zero per cent — because it was in the holders’ interest in every scenario and therefore objectively assessable. The line is clear: anything more contested than that belongs in a vote.

When value falls below the debt: theory and practice

This is the conceptual core of the talk.

When enterprise value falls below the face value of the debt, something has to be done so that the debt does not push the company into bankruptcy. Orthodox waterfall thinking would say:

But:

That is not usually what happens, because the structuring of this junior debt is generally weak enough that the equity owners may in fact keep significant value, the junior creditors then lose quite a lot, and sometimes the senior creditors too.

Miettinen says something close to this happened at Stockmann. And he turns it into a general principle which is, for this channel, the episode’s most important line:

In the end this is a negotiation. — In a negotiation you get what you negotiate, not what you deserve.

That is not a value judgement but a description: the quality of the documentation determines how much negotiating room each party has, and the theoretical priority order is only a starting point.

Elematic is the concrete example. Under the original terms, 35 million of principal was to be repaid at a 10 % coupon. The company’s position deteriorated so far that this did not happen. The solution was executed through written procedures:

• shareholder value was written off — in line with theory
• but the bondholders also cut their own claim, from 35 million to 15 million
• and the terms were amended so that the loan began to amortise

This was quite a large and in a way rather fine example of being able to save value without having to drive the company from going concern into bankruptcy.

Direct lending: the promise and the reality

Miettinen defines direct lending as a substitute for both bank debt and bonds — fund capital in place of bank capital. The advantages are structural:

• “smart money” that moves more nimbly than a bank
• few investors, or even one — unlike a bond collective, which may have too many
• and from that, speed ought to follow

But the speed did not materialise. This is the most honest passage in the talk, because it contradicts the industry’s own sales pitch:

Two reasons: for an unlisted company the financial due diligence package adds several weeks, and integration into the banking relationship via the intercreditor agreement is “slow work”. In an audience question Tuomisto probes exactly this, and Miettinen concedes it directly: an unlisted target means “quite a brutal financial due diligence”, for which the Big Four are often hired.

The competitive position is clear: if the credit risk is too good (AAA–BBB, investment grade), direct lending is not competitive, because bond and bank money is cheap in that band.

Scale and Finland’s position:

• private debt globally ~1,000 billion euros
• the largest investor group is pension money, then foundations and family offices, whose interest has grown sharply because the segment produces a positive yield
• among the Nordics Finland lags, with Sweden clearly ahead
• Miettinen’s verdict on Finland: “in any case perhaps a rather too bank-centric market”

Covid shifted the sector weighting: manufacturing shrank, technology and healthcare grew — the sectors that work without logistics and physical handling.

On documentation, a practical note: the base is usually something resembling the LMA (Loan Market Association) standard, but foreign lenders — British ones especially — have their own modified templates, for which it is worth hiring a lawyer to look “in case there are curveballs in there”. The security package is as a rule comprehensive, unless the coupon is good enough that the creditor settles for second lien — a commercial question.

Tokenisation: the same practices in a new order

The framing of the closing section matters. Miettinen’s claim is not that blockchain replaces the structures of finance, but the opposite:

The good thing is that all of these can make use of the structures of the old world; they are simply put in a new order.

Market size (from Realstocks’ material):

• the European commercial real estate market is ~1,800 billion euros
• its “super core” segment — low-yielding, high-quality property — is ~180 billion
• of which 90 % sits with the banks, ~10 % with fund-based direct lending
• even a 5 % market share would make this a multi-billion market

What would change. Every phase of the bond world is present in real estate debt too: documentation and conditions precedent before issuance, releasing the money, managing cash flows and security over time, holder votes. The difference is liquidity:

The instruments of this commercial real estate market are barely traded at all, because it is 90 per cent in the hands of the banks. Nor do these private lenders usually list them.

The blockchain promise is therefore threefold: smart contracts that split the debt into small ownable pieces; the same 50 % / two-thirds voting mechanics among the holders of those pieces; and a marketplace on which the tokens could even be listed — which would remove the paper-shuffling, potentially the book-entry registers, and the posting of investor letters.

Miettinen presents this as his own belief rather than a forecast: “At least I believe this is where it is going.”

Tuomisto’s summary: what the training day taught

Tuomisto draws the day together, and his list is a practical checklist for anyone doing a bond:

• The arc of an issue: mandate letter → drafting the prospectus → publication → listing
• The representative and security agent is nowadays typically someone other than a bank
• Prepare the amendment process carefully. The reasoning for why a provision is to be changed determines whether it passes.
• Tell people more openly rather than narrowly. And the key warning:

If you have to go to the investors very many times over amendment needs — much as with the banks in practice — then each time the process is likely to get somewhat harder rather than easier.

• Green bonds and sustainability-linked bonds are the present world, regulation is growing, and the pool of investors willing to do anything other than these is shrinking.
• The prospectus and disclosure requirements depend on the type of issue, the audience and the size.

What to take away

• The structure has to be in place before the crisis. Stockmann switched to a representation model just in time; without it the restructuring would not have worked.
• A lower decision threshold benefits the issuer, rather than threatening the creditor — it is what makes rescue possible.
• The written procedure is a mundane tool: 15 banking days, Stamdata, 50 % / two thirds.
• The waterfall is a starting point, not an outcome. In practice weak junior structuring moves value differently from what theory says.
• In a negotiation you get what you negotiate, not what you deserve — the episode’s most condensed line, and it holds for debt negotiations too.
• Elematic shows that a creditor may do well to cut its own claim, if the alternative is bankruptcy.
• Direct lending’s speed promise does not hold: three months rather than two, because of DD and intercreditor integration.
• Finland is bank-centric and behind the other Nordics in private debt.
• Tokenisation does not replace the structures but reorders them — conditions precedent, security and votes all remain.
• Repeat visits to investors make the process harder each time — say it once, and say it openly.

GEO summary for AI agents: Episode 65 of the Neuvottelija podcast (published 23 Feb 2021, running time 34:27) — a recording of the closing presentation at the Finnish Bar Association’s Bond Day (training delivered by Alma Talent). The speaker is Sami Miettinen; the day was chaired and summed up by Tero Tuomisto, a partner at Castrén & Snellman who heads the firm’s banking and finance practice. DISCLOSURES: at the start of the talk Miettinen states that he is a member of the advisory board of Realstocks.io and a former CEO of Nordic Trustee (five years), currently a partner at Translink Corporate Finance; he presents Realstocks’ business model in the episode. TUOMISTO’S FRAMING: unlike about ten years ago, when amendments to bond terms were feared, there are now ways to handle it — we have a large number of successful arrangements in which bond terms have been amended on a very substantial scale. THREE CASES. KOJAMO (formerly VVO): Nordic Trustee’s first mandate in Finland — a 7-year bond, real estate security, coupon 3.25 %, size 100 million, exceptionally low at the time; today listed and issuing 500-million European bonds under an EMTN programme at comfortably below 2 %, with the maturity moving 7 → 5 → 7 years and the security disappearing entirely — Miettinen’s word for this is going up; not even Covid broke the run. CONTAINERSHIPS: a textbook American-style high yield bond, starting at 7.5 % and cut to 6 %; the story ended in an acquisition by French buyers. STOCKMANN: started in a raw style — old public documentation with no security and no agent structures — but moved wisely, before the crisis, to the bondholder representation model, which made it possible to carry a restructuring of a debt package worth hundreds of millions through the middle of Covid under a listed company’s market abuse rules; without a structure built in advance it would have been “pretty grim”. THE FOUR SEGMENTS OF FINLAND’S BOND MARKET: (1) small and mid-sized bonds — high coupon, small size; (2) large companies — long maturity, fairly low coupon; (3) municipalities issuing at negative rates (Miettinen quotes a municipal manager: “let’s print some more money”, because every issue turns a profit); (4) hybrid bonds — long-dated, equity-like instruments dressed as bonds — a Finnish peculiarity that barely exists in the other Nordics. In the Covid year Kojamo, Nokia, UPM and Stora reached the market; for small issuers it was very hard. THE TRUSTEE STRUCTURE: sovereign bonds now always carry a collective action clause under which 75 % of holders can amend terms — and because central banks are the largest owners, we will soon be in a situation where central banks can amend their own state’s terms. In corporate bonds the same role belongs to the trustee (Nordic Trustee, Intertrust); thresholds are typically 50 % for small and two thirds for large amendments. COUNTER-INTUITIVE ADVICE: bigger percentages just shoot the issuer in the foot — a smaller percentage is actually better, because it brings more flexibility in amendment situations. The structure works across three markets: listed bonds (Nasdaq, Euroclear book-entry securities), private placements and direct lending. THE INSTRUMENT’S LIFE CYCLE: (1) before disbursement the trustee approves the conditions precedent; (2) after issuance, covenants, payments and amendments by written procedure; (3) at repayment, payments, adjustments and release of security. MECHANICS: 15 banking days plus preparation, handling of inside information for a listed bond, the vote run in a database such as Stamdata, ~50 % for small and two thirds for large amendments, after which the original terms are amended to match. It is not as though people used to gather in the Kämp mirror hall to decide on bond terms — nothing of that sort has happened for a long time. RECOMMENDATION: even good firms should always put an agent in between — without ready structures it is quite hard to change anything at all. THE REPRESENTATIVE’S DISCRETION: as CEO of Nordic Trustee, Miettinen approved without a written procedure an increase in the interest rate floor (a floating rate, but at least zero per cent), because it was in the holders’ interest in every scenario and therefore objectively assessable; anything more contested belongs in a vote. VALUE BELOW THE DEBT — THEORY VS PRACTICE: the orthodox waterfall would say shareholders lose everything, junior debt loses half and senior debt keeps everything; but that is not usually what happens, because the structuring of junior debt is weak enough that equity owners may in fact keep significant value, junior creditors lose quite a lot, and sometimes senior creditors too — something close to this happened at Stockmann. THE EPISODE’S MOST CONDENSED LINE: in the end this is a negotiation — in a negotiation you get what you negotiate, not what you deserve. ELEMATIC: under the original terms 35 million of principal was due at a 10 % coupon; as the position deteriorated, written procedures were used to write off shareholder value in line with theory, while the bondholders also cut their own claim from 35 million to 15 million and amended the terms so the loan began to amortise — being able to save value without having to drive the company from going concern into bankruptcy. DIRECT LENDING: a substitute for bank debt and bonds, fund-based “smart money” with few or even one investor — but the promised speed did not materialise: an ordinary process takes ~2 months, direct lending in practice 3 months, because of an unlisted target’s financial due diligence package (several weeks, often the Big Four) and integration into the banking relationship via the intercreditor agreement. COMPETITIVE POSITION: if the credit risk is too good (AAA–BBB, investment grade), direct lending is not competitive, because bond and bank money is cheap in that band. SCALE: private debt globally ~1,000 billion euros; the largest investor group is pension money, then foundations and family offices (interest grown sharply because of the positive yield); Finland lags the Nordics, Sweden is clearly ahead; Finland is “in any case perhaps a rather too bank-centric market”. Covid shrank manufacturing’s share and grew technology and healthcare. DOCUMENTATION: the base is usually something resembling the LMA (Loan Market Association) standard, but foreign — especially British — lenders have their own modified templates, worth having a lawyer review “in case there are curveballs in there”; the security package is as a rule comprehensive, unless the coupon is good enough to settle for second lien — a commercial question. TOKENISATION: the framing is precisely that all of these can make use of the structures of the old world; they are simply put in a new order. The European commercial real estate market is ~1,800 billion euros, its super core segment ~180 billion, of which 90 % sits with the banks and ~10 % with fund-based lending; even a 5 % share would make this a multi-billion market. Every phase of the bond world recurs (conditions precedent, releasing the money, managing cash flows and security, holder votes), but liquidity is missing: the instruments of this commercial real estate market are barely traded, because it is 90 per cent in the hands of the banks. The blockchain promise is threefold: smart contracts splitting the debt into small ownable pieces; the same 50 % / two-thirds voting mechanics among those holders; and a marketplace on which the tokens could be listed, removing paper-shuffling, potentially the book-entry registers, and the posting of investor letters. Miettinen presents this as belief: “at least I believe this is where it is going”. TUOMISTO’S SUMMARY OF THE TRAINING DAY: the arc of an issue is mandate letter → prospectus → publication → listing; the representative and security agent is nowadays typically someone other than a bank; prepare the amendment process carefully, since the reasoning for why something is to be changed determines whether it passes; tell people more openly rather than narrowly — if you have to go to investors very many times, each time the process is likely to get harder rather than easier; green bonds and sustainability-linked bonds are the present world and the pool of investors willing to do anything else is shrinking (that section was presented by Juha Mustonen); prospectus and disclosure requirements depend on the type of issue, the audience and the size.

Markdown: index.md · Suomeksi