EFG INTERNATIONAL (GUERNSEY) LIMITED - Luxembourg ...
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EFG INTERNATIONAL (GUERNSEY) LIMITED
(incorporated as a non-cellular limited liability company in Guernsey with registration number 54029)
€67,604,000 8 per cent. Resettable Guaranteed Subordinated Notes
due 2022
irrevocably guaranteed on a subordinated basis by
EFG INTERNATIONAL AG
(incorporated with limited liability in Switzerland)
Issue price: 100 per cent.
The €67,604,000 8 per cent. Resettable Guaranteed Subordinated Notes due 2022 (the Notes) will be issued
by EFG International (Guernsey) Limited (the Issuer) on 13 January 2012 (the Issue Date) and
unconditionally and irrevocably guaranteed, on a subordinated basis as described herein (the Guarantee), by
EFG International AG (the Guarantor). The Notes will, unless previously redeemed or cancelled, bear
interest from (and including) the Issue Date to (but excluding) 13 January 2017 (the Reset Date) at a rate of
8 per cent per annum, payable annually in arrears on 13 January in each year. From the Reset Date, the Notes
will, unless previously redeemed or cancelled, bear interest from (and including) the Reset Date to (but
excluding) 13 January 2022 (the Maturity Date) at a rate per annum which shall be the aggregate of the
relevant 5 year Swap Rate (as defined in the Terms and Conditions of the Notes (the Conditions)) as of the
Reset Date and a margin of 6.28% per annum (the Margin).
The Issuer may, at its option, subject to having received the consent of the Swiss Financial Market
Supervisory Authority (FINMA), redeem all, but not some only, of the Notes on the Reset Date at their
principal amount together with interest accrued to the date of redemption. The Issuer may also, at its option,
subject to having received the consent of the FINMA, redeem all, but not some only, of the Notes at their
principal amount together with interest accrued to the date of redemption, upon the occurrence of a Capital
Event or in the event of certain tax changes, all as described under "Conditions of the Notes - Redemption
and Purchase".
If a Non-Viability Event (as defined in the Conditions) occurs, the Notes shall be written-off and the
Noteholders (as defined herein) shall no longer have any right to receive repayment of the principal amount
of the Notes and the Couponholders (as defined herein) any interest (the Write-Off). All Notes will,
following the occurrence of a Non-Viability Event, forthwith be cancelled, together with all relative
unmatured Coupons (as defined herein) attached to the Notes.
Application has been made to the Commission de Surveillance du Secteur Financier (the CSSF) in its
capacity as competent authority under the Luxembourg act dated 10 July 2005 on prospectuses for securities
(the Prospectus Act 2005) to approve this document as a prospectus. The CSSF assumes no responsibility
as to the economic and financial soundness of the transaction or the quality or solvency of the Issuer in
accordance with Article 7(7) of the Prospectus Act 2005. Application has also been made to the
Luxembourg Stock Exchange for the listing of the Notes on the Official List of the Luxembourg Stock
Exchange and admission to trading on the Luxembourg Stock Exchange's regulated market.
The Notes are expected to be rated A- by Fitch Ratings Limited (the Rating Agency). A rating is not a
recommendation to buy, sell or hold securities and may be subject to revision, suspension or withdrawal at
any time by the assigning rating organisation. As of the date of this prospectus (the Prospectus), the Rating
Agency is a credit rating agency established in the European Union and is registered under Regulation (EC)
No 1060/2009 (as amended). As such the Rating Agency is included in the list of credit rating agencies
0061297-0000314 ICM:13992691.4 1published by the European Securities and Markets Authority on its website in accordance with such
Regulation.
The Notes will initially be represented by a temporary global note (the Temporary Global Note), without
interest coupons, which will be deposited on or about 13 January 2012 (the Closing Date) with a common
depositary for Euroclear Bank SA/NV (Euroclear) and Clearstream Banking, société anonyme
(Clearstream, Luxembourg). Interests in the Temporary Global Note will be exchangeable for interests in
a permanent global note (the Permanent Global Note and, together with the Temporary Global Note, the
Global Notes), without interest coupons, on or after a date which is expected to be 22 February 2012, upon
certification as to non-U.S. beneficial ownership. Interests in the Permanent Global Note will be
exchangeable for definitive Notes only in certain limited circumstances - see "Summary of Provisions
relating to the Notes while represented by the Global Notes".
An investment in the Notes involves certain risks. Prospective investors should have regard to the
factors described under the heading "Risk Factors" on page 6.
Dealer Manager
BNP PARIBAS
The date of this Prospectus is 12 January 2012
0061297-0000314 ICM:13992691.4 2This Prospectus comprises a prospectus for the purposes of Articles 3 and 5 of Directive 2003/71/EC as amended (the Prospectus Directive) and for the purposes of the Prospectus Act 2005. The Issuer and the Guarantor accept responsibility for the information contained in this Prospectus. To the best of the knowledge of the Issuer and the Guarantor (each having taken all reasonable care to ensure that such is the case) the information contained in this Prospectus is in accordance with the facts and does not omit anything likely to affect the import of such information. The Issuer and the Guarantor, having made all reasonable enquiries, confirm that this Prospectus contains all material information with respect to the Issuer, the Guarantor, the Notes and the Guarantee (including all information which, according to the particular nature of the Issuer, the Guarantor and of the Notes and the Guarantee, is necessary to enable investors to make an informed assessment of the assets and liabilities, financial position, profits and losses and prospects of the Issuer and the Guarantor and of the rights attaching to the Notes and the Guarantee), that the information contained or incorporated in this Prospectus is true and accurate in all material respects and is not misleading, that the opinions and intentions expressed in this Prospectus are honestly held and that there are no other facts the omission of which would make this Prospectus or any of such information or the expression of any such opinions or intentions misleading. The Issuer and the Guarantor accept responsibility accordingly. This Prospectus is to be read in conjunction with all documents which are deemed to be incorporated herein by reference (see "Documents Incorporated by Reference"). This Prospectus should be read and construed on the basis that such documents are incorporated and form part of the Prospectus. No person is or has been authorised by the Issuer or the Guarantor to give any information or to make any representation not contained in or not consistent with this Prospectus or any other information supplied in connection with the offering of the Notes and, if given or made, such information or representation must not be relied upon as having been authorised by the Issuer, the Guarantor or the Dealer Manager. Neither this Prospectus nor any other information supplied in connection with the offering of the Notes (a) is intended to provide the basis of any credit or other evaluation or (b) should be considered as a recommendation by the Issuer, the Guarantor or the Dealer Manager that any recipient of this Prospectus or any other information supplied in connection with the offering of the Notes should purchase any Notes. Each investor contemplating investing in any Notes should make its own independent investigation of the financial condition and affairs, and its own appraisal of the creditworthiness, of the Issuer and/or the Guarantor. Neither this Prospectus nor any other information supplied in connection with the offering of the Notes constitutes an offer or invitation by or on behalf of the Issuer or the Guarantor or the Dealer Manager to any person to subscribe for or to purchase any Notes. Neither the delivery of this Prospectus nor the offering, sale or delivery of the Notes shall in any circumstances imply that the information contained herein concerning the Issuer and/or the Guarantor is correct at any time subsequent to the date hereof or that any other information supplied in connection with the offering of the Notes is correct as of any time subsequent to the date indicated in the document containing the same. The Dealer Manager expressly does not undertake to review the financial condition or affairs of the Issuer or the Guarantor during the life of the Notes or to advise any investor in the Notes of any information coming to its attention. The Notes and the guarantees thereof have not been and will not be registered under the United States Securities Act of 1933, as amended (the Securities Act) and are subject to U.S. tax law requirements. Subject to certain exceptions, the Notes may not be offered, sold or delivered within the United States or to U.S. persons. 0061297-0000314 ICM:13992691.4 3
The distribution of this Prospectus and the offer or sale of Notes may be restricted by law in certain jurisdictions. This Prospectus is not an issue prospectus pursuant to article 652a or article 1156 of the Swiss Code of Obligations or a listing prospectus pursuant to articles 27 et seq. of the Listing Rules of the SIX Swiss Exchange and may not comply with the information standards required thereunder. Accordingly, the Notes will not be listed on any Swiss stock exchange and may not be offered to the public in or from Switzerland, but only to a selected and limited circle of "qualified investors" within the meaning of article 10(3) of the Swiss Federal Act on Collective Investment Schemes who do not subscribe to the Notes with a view to distribution. The Notes will not be offered or sold to any person resident in the Bailiwick of Guernsey or any person resident for the purposes of the Income Tax (Guernsey) Law 1975 (as amended) in Guernsey, Alderney or Herm, Channel Islands. All references in this document to euro and € refer to the lawful currency introduced at the start of the third stage of European Economic and Monetary Union pursuant to the Treaty on the Functioning of the European Union, as amended. 0061297-0000314 ICM:13992691.4 4
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CONTENTS
Page
Risk Factors..................................................................................................................................................6
Documents Incorporated by Reference........................................................................................................19
Conditions of the Notes ..............................................................................................................................21
Summary of Provisions relating to the Notes while represented by the Global Notes ...................................36
The Exchange Offer....................................................................................................................................39
Description of the Issuer .............................................................................................................................40
Description of the Guarantor.......................................................................................................................42
The Guarantee ............................................................................................................................................57
Taxation .....................................................................................................................................................63
General Information ...................................................................................................................................68
___________________________________
0061297-0000314 ICM:13992691.4 5RISK FACTORS Each of the Issuer and the Guarantor believes that the following factors may affect its ability to fulfil its obligations under the Notes. Most of these factors are contingencies which may or may not occur and neither the Issuer nor the Guarantor is in a position to express a view on the likelihood of any such contingency occurring. In addition, factors which are material for the purpose of assessing the market risks associated with the Notes are described below. Each of the Issuer and the Guarantor believes that the factors described below represent the principal risks inherent in investing in the Notes, but the inability of the Issuer or the Guarantor to pay interest, principal or other amounts on or in connection with the Notes may occur for other reasons which may not be considered significant risks by the Issuer and the Guarantor based on information currently available to them or which they may not currently be able to anticipate. Prospective investors should also read the detailed information set out elsewhere in this Prospectus and reach their own views prior to making any investment decision. Factors that may affect the Issuer's ability to fulfil its obligations under the Notes Changes to the laws of Guernsey applicable to the Issuer could have a material negative effect on the Issuer or its business activities The Issuer is subject to the laws of Guernsey, any of which may change at any time and could have a material adverse effect on the Issuer or its business activities. Such changes could include changes to statutory, tax and regulatory regimes. In particular, on 27 October 2009 the States of Deliberation of Guernsey resolved that a planned review of taxation in Guernsey shall proceed on the presumption of a 10 per cent. general rate of corporate tax. Until such time as the review is complete, the existing corporate income tax regime remains in place. The Issuer depends on other members of the Group The Issuer is a finance vehicle established by the Guarantor for the purpose of the Exchange Offer (as defined below). In order for the Issuer to fulfil its obligations under the Notes, the Issuer will therefore be dependent upon payments from other members of the Group (as defined in the Conditions), including through preference dividend payments made by EFG Finance (Guernsey) Limited on the Class B Shares that the Issuer will acquire following the Exchange Offer, upon the Guarantor repurchasing the Class B Bons de Participations following the Exchange Offer, upon the Guarantor capitalising the Issuer adequately and on other members of the Group paying interest on and repaying in a timely fashion any loans the Issuer might grant to them. Should any Group member fail to make any such payments in a timely fashion, that failure could have a material effect on the ability of the Issuer to fulfil its obligations under the Notes. By virtue of its dependence on other Group members, each of the risks described below that affect the Guarantor will also indirectly affect the Issuer. Factors that may affect the Guarantor's ability to fulfil its obligations under the Guarantee Risks relating to the Guarantor and the Group's business As a result of its business activities, the Group is exposed to a variety of risks, the most significant of which are business risk, credit risk, market risk, operational risk and liquidity risk. Failure to control these risks could have a material adverse effect on the Guarantor's consolidated financial performance and reputation. 0061297-0000314 ICM:13992691.4 6
Risks relating to global economic and market conditions Since the second half of 2007, disruption in the global credit markets, coupled with the re-pricing of credit risk, has created increasingly difficult conditions in the financial markets. Financial markets are subject to periods of historic volatility which may impact the Group's financial performance, either because of a reduction in trading activities by its clients or because of changes in investment markets, including changes in interest rates, exchange rates and other risks to which the Group is exposed. The largest part of the portfolios the Group handles are non-discretionary portfolios with fee arrangements based on the volume of transactions into which the Group enters on behalf of its clients, including fees. Historically, trading volumes have declined in times of market downturn. To the extent this is also the case in future periods of market downturn, the Group’s revenues would decline, because less market activity would result in a lower commission income. Since the onset of the current period of economic stress and related financial market volatility, the Group has observed periods of decreased trading activity among its clients. As a result, the average amount of revenue earned by the Group as a percentage of its Assets under Management (AuMs) has been under pressure since the second half of 2007. Continued periods of declining securities prices and economic difficulties may continue to depress client activities which would have an adverse impact on the Group’s business. In addition, an important portion of the Group’s revenues is derived from investment advisory contracts with its clients, both in connection with non-discretionary and discretionary accounts. The Group’s income from investment advisory services is generated directly from advisory fees and, with respect to non-discretionary accounts, indirectly from commission fees the Group charges for performing brokerage, trading or custody services. The fee arrangement for a discretionary managed portfolio is usually a flat-fee arrangement, according to which the Group charges a percentage of AuM in the portfolio that also includes the advisory fees, although fees may include a performance-related component in some cases. In either case, the revenues associated with investment advisory and ancillary services are typically proportionate to AuMs. If the market value of the Group’s AuMs were to decline further as a result of a decline in the securities markets, changes in foreign exchange rates, or as a result of poor investment performance, the Group’s revenues and profits would be likely to decline as a result. Moreover, a continuation or worsening of the current period of economic distress or a continued decline in securities prices may have a detrimental effect on the quality of the Group’s assets, as a result of a decline in the value of collateral securing the Group’s loans to its clients or a decrease in credit worthiness of financial institutions and other counterparties of the Group. Competition All aspects of the Guarantor and the Group’s business are highly competitive and the competitive conditions are expected to continue to intensify. The Guarantor and the Group’s ability to compete depends on many factors, including its reputation, the quality of its services and advice, intellectual capital, product innovation, execution ability, pricing, sales efforts, and the talent of its employees. The significant and increasing competition may adversely affect the Guarantor's and the Group's future results of operations. Competition in the private banking markets is based on a number of factors, including investment performance, personal relationships, products, pricing, distribution systems, customer service, brand recognition and perceived financial strength. The Group competes with the private banking divisions of a number of large international financial institutions as well as with established local and regional competitors, including Swiss private banks and private banks based in the local markets in which it operates. In addition, the Group faces competition from a number of wealth managers, including commercial banks, commercial credit lending, brokerage firms, broker-dealers, insurance companies and other financial institutions in Europe, Asia and the Americas. 0061297-0000314 ICM:13992691.4 7
The type and degree of competition faced by the Group depends on the location in which it operates. In Switzerland, for example, the Group face competition primarily from a number of well-established Swiss global and private banks with long-standing clients. In growing markets, such as those in Asia, the Group faces intense competition from large international banks including several Swiss global banks that are seeking to increase their presence in a growing region. Many of the Group’s competitors form part of larger financial services groups and attract business through numerous avenues including retail bank offices, commercial credit lending, investment banking contacts, corporate lending and broker-dealers. A number of the Group’s competitors have a stronger brand and are able to offer more comprehensive lines of products and services than the Group. In addition, many of the Group’s competitors are systemically important financial institutions that are more likely than the Group to benefit from government support. As a result, these competitors may be perceived by clients to provide greater security and stability than the Group’s subsidiaries, which may adversely affect the Group’s ability to attract or retain client relationships and AuMs. Credit risk Risks arising from changes in credit quality and the recoverability of loans and amounts due from counterparties are inherent in a wide range of the Group's businesses. Adverse changes in the credit quality of the Group's borrowers and counterparties or a general deterioration in the Swiss, European Union, US or global economic conditions could affect the recoverability and value of its assets and require an increase in the Guarantor's consolidated provision for bad and doubtful debts and investments. The Group’s credit exposures result primarily from loans to clients secured by financial collateral or real estate and from exposures to financial institutions, sovereigns and quasi-sovereign entities and corporations as part of the Group’s business. Continuing volatility in financial markets may adversely affect the ability of the Group’s clients and counterparties to meet their financial obligations and may lead to losses for the Group. Country risk Country risk is defined as “the transfer and conversion risk that arises from cross-border transactions”. Country risk also encompasses sovereign risk, the default risk of sovereigns or state entities acting as borrowers, guarantors or issuers. The Group’s international operations are subject to risk of loss from unfavourable economic, political, legal and other developments in the relevant countries. The Group is exposed to country risk in particular as a result of its exposures to sovereign and quasi-sovereign institutions and to banks, other financial institutions and corporations located outside of Switzerland. Market risk Market risk refers to fluctuations in trading of securities, derivatives, foreign exchange rates, share and commodity prices. The Guarantor and the Group take on exposure to market risks, which is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risks arise from open positions in interest rate, currency and equity products, all of which are exposed to general and specific market movements and changes in the level of volatility of market rates or prices such as interest rates, credit spreads, foreign exchange rates, commodities and equity prices. Market risk derives from trading in treasury and investment market products for which prices are fixed daily, as well as from more traditional banking business, such as loans. Changes in interest rates may affect the Group’s net interest income. Like all banking groups, the Group earns interest from loans and other assets, and pays interest to depositors and other creditors. Changes in interest rates will affect both the level of interest income and interest expense. The net effect of changes in interest rates on the Group’s net interest income will depend on the relative level of assets and liabilities that 0061297-0000314 ICM:13992691.4 8
are affected by the change in interest rates. Consequently the Guarantor's and the Group's net interest income may decrease. The Group is also exposed to market risk through the trading activities of its subsidiary, EFG Financial Products AG which is exposed to residual market risks relating to mismatches between the market risks inherent in structured products issued by the Group and positions held to hedge those exposures. The Group is also exposed to market risks and to risks relating to the value of life insurance policies held by the Group. Currency risk The Group is exposed to currency risk in connection with the capital of its subsidiary banks that is denominated in local currencies. The Guarantor and the Group are also exposed to foreign currency fluctuations because the majority of its revenues relate to fees charged on AuMs denominated in currencies other than the Swiss franc. Moreover, many of the Group’s operating subsidiaries use local currencies as their functional reporting currencies, which may result in volatility in reported earnings as a result of fluctuations in exchange rates between the functional reporting currencies of its subsidiaries and the Swiss franc. The Group does not have currency hedging arrangements in place to minimize the effects of exchange rate fluctuations on the reporting of its subsidiary banks (currency translation risk). Liquidity risk The inability of a bank or financial institution, including the Guarantor's subsidiaries, to anticipate and provide for unforeseen decreases or changes in funding sources could have an adverse effect on such bank's ability to meet its obligations when they fall due. Liquidity risk is the risk that the Guarantor or the Group may not be able to generate sufficient cash resources to settle its obligations in full as they fall due or can only do so on terms that are materially disadvantageous. Liquidity could be affected by unexpected withdrawal of client deposits, the inability to access the long- term or short-term debt, repurchase, or securities lending markets whether due to factors specific to the Guarantor or the Group or to general market conditions. In this context it should be noted that the Guarantor is a holding company and therefore all its liquid assets are held by its subsidiaries which might negatively impact the Guarantor's ability to generate cash reserves. The Guarantor and the Group's liquidity is critical to its ability to operate its business, to grow and be profitable. If the Guarantor or the Group does not effectively manage its liquidity, its business could be negatively affected. Reputational risks The Group's reputation which may essentially be affected by shortcomings under any risk category is critical in maintaining its relationships with clients, investors, regulators and the general public, and is a key focus in its risk management efforts. The Group is involved in a number of judicial, regulatory and arbitration proceedings concerning matters arising in connection with the conduct of its business. There have been a number of highly publicized cases involving fraud or other misconduct by employees in the financial services industry in recent years, and the Group is exposed to the risk of fraud, misconduct or improper practice by its employees. Internal procedures or precautions in place to prevent and detect such fraud, misconduct or improper practice may not be effective in all cases. Substantial legal liability or a significant regulatory action against the Group, or adverse publicity, governmental scrutiny or legal and enforcement proceedings regardless of the ultimate outcome, could cause significant reputational damage to the Group and adversely affect the Group's business, results of operations and financial position. Operational risk The Guarantor and the Group's businesses are dependent on the ability to process a very large number of transactions efficiently and accurately. Operational risk and losses can result from fraud, errors by employees, failure to document transactions properly or to obtain proper internal authorization, failure to 0061297-0000314 ICM:13992691.4 9
comply with regulatory requirements and conduct of business rules, equipment failures, natural disasters or the failure of third party systems, for example, those of the Group's suppliers or counterparties. Although the Guarantor and the Group have implemented risk controls and loss mitigation actions, and substantial resources are devoted to developing efficient procedures and to staff training, it is not possible to implement procedures which are fully effective in controlling each of the operational risks. Risks relating to the Group’s credit rating or perceived credit worthiness The Guarantor and its subsidiary, EFG Bank AG, are each rated by Moody’s Deutschland GmbH (Moody's) and the Rating Agency. As of the date of the Prospectus, Moody's is a credit rating agency established in the European Union and registered under Regulation (EC) No 1060/2009 (as amended). As such Moody’s is included in the list of credit rating agencies published by European Securities and Markets Authority (ESMA) on its website in accordance with such Regulation. These credit ratings of the Guarantor and EFG Bank AG and related perceptions of the Group’s credit worthiness affect both the terms on which counterparties are willing to transact with the Group and, in some cases, the willingness of clients to do business with the Group. Rating downgrades or changes in perceptions of the Group’s credit worthiness may limit the terms on which the Group is able to conduct foreign exchange transactions, enter into derivative agreements as part of its hedging activities and may cause clients to be reluctant to do business with the Group. In addition, a ratings downgrade would be likely to affect the ability of the Group to issue structured notes through its subsidiary, EFG Financial Products AG, which would negatively affect the Group’s funding costs and liquidity. Therefore, a reduction in the Group’s credit rating or a material change in its perceived credit worthiness could have a material adverse effect on the Group’s business, results of operations and financial condition. Legal risks The Group is involved in a number of judicial, regulatory and arbitration proceedings concerning matters arising in connection with the conduct of its business. An adverse result in some of these proceedings could result in the Group being required to make significant payments which could adversely affect the Group’s financial position. Impact of regulatory changes The Group is subject to financial services laws, regulations, administrative actions and policies in Switzerland and each other location in which it operates. Changes in supervision and regulation, in particular in Switzerland, could materially affect the Group's business, the products and services offered or the value of its assets. Although the Guarantor works closely with its regulators and continually monitors the situation, future changes in regulation, fiscal or other policies can be unpredictable and are beyond the Group’s control. Basel III requirements The Basel Committee on Banking Supervision has announced a set of changes to capital adequacy and liquidity requirements, which, when implemented, may result in increased costs for the Group or may require it to adjust its business strategy in order to comply with the new requirements. Increased compliance requirements Legislation and rules adopted both in Switzerland and around the world have imposed substantial new or more stringent regulations, internal practices, capital requirements, procedures and controls and disclosure requirements in such areas as financial reporting, corporate governance, auditor independence, equity compensation plans, restrictions on the interaction between equity research analysts and investment banking 0061297-0000314 ICM:13992691.4 10
employees and money laundering. The trend and scope of increased compliance requirements may require
the Group (including the Issuer and the Guarantor) to invest in additional resources to ensure compliance.
The trend and scope of increased compliance requirements has increased costs necessary to ensure
compliance. The Group's reputation is critical in maintaining the Group's relationships with clients, investors,
regulators and the general public, and is a key focus in the Group's risk management efforts.
Should the Group violate any applicable regulation legal and/or administrative proceedings, this may result
in censures, fines, cease-and-desist orders or suspension of the firm, its officers or employees. The scrutiny
of the financial services industry has increased over the past several years, which has led to increased
regulatory investigations and litigation against financial services firms.
Effect of regulatory changes on the Group’s clients
The Group is exposed to the risk that its clients may move assets away from jurisdictions in which it
operates. In particular, regulatory or tax changes in either the jurisdiction where the assets are held or in the
jurisdiction where the assets are domiciled might cause clients to shift their assets away from or towards
particular jurisdictions. The extent to which tax and regulatory changes cause the Group’s clients to move
assets away from jurisdictions where the Group has a strong presence has the potential to reduce the Group's
AuMs. As a result of any such development, the Group’s business, results of operations and financial
condition may be adversely affected.
Because AuMs booked in Switzerland represent an important part of the Group’s overall business, it is
particularly exposed to the risk of changes in Swiss banking secrecy or other laws. Any future change in the
Swiss banking secrecy laws, allowing foreign authorities, regulators and other interested parties to request
the disclosure of the identity of the Group’s clients, or the anticipation of such a change could result in some
of the Group’s clients’ assets being moved away from Switzerland to other markets. This may cause a
decline of the Group’s AuMs and may adversely affect the Group’s business, results of operations and its
financial condition.
Factors which are material for the purpose of assessing the market risks associated with the Notes
The Notes may not be a suitable investment for all investors
Each potential investor in the Notes must determine the suitability of that investment in light of its own
circumstances. In particular, each potential investor should:
(i) have sufficient knowledge and experience to make a meaningful evaluation of the Notes, the merits
and risks of investing in the Notes and the information contained or incorporated by reference in this
Prospectus or any applicable supplement;
(ii) have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its
particular financial situation, an investment in the Notes and the impact the Notes will have on its
overall investment portfolio;
(iii) have sufficient financial resources and liquidity to bear all of the risks of an investment in the Notes,
including where the currency for principal or interest payments is different from the potential
investor's currency;
(iv) understand thoroughly the terms of the Notes and be familiar with the behaviour of any relevant
financial markets; and
0061297-0000314 ICM:13992691.4 11(v) be able to evaluate (either alone or with the help of a financial adviser) possible scenarios for
economic, interest rate and other factors that may affect its investment and its ability to bear the
applicable risks.
The Notes are complex financial instruments. Sophisticated institutional investors generally do not invest in
complex financial instruments as stand-alone investments. They purchase complex financial instruments as
a way to reduce risk or enhance yield with an understood, measured, appropriate addition of risk to their
overall portfolios. A potential investor should not invest in the Notes unless it has the expertise (either alone
or with a financial adviser) to evaluate how the Notes will perform under changing conditions, the resulting
effects on the value of the Notes and the impact this investment will have on the potential investor's overall
investment portfolio.
The Notes will be subject to optional redemption by the Issuer on the Reset Date, upon the occurrence of a
Capital Event and upon the occurrence of certain tax changes
Unless previously redeemed or purchased and cancelled, the Issuer will redeem the Notes on the Maturity
Date at their principal amount together with any accrued and unpaid interest to such date. However, the
Notes may be redeemed, at the option of the Issuer, subject to it having received the consent of the FINMA,
in whole but not in part on the Reset Date, at their principal amount together with any accrued and unpaid
interest up to (but excluding) the redemption date.
In addition, upon the occurrence of a Capital Event or certain tax changes as described under "Conditions of
the Notes - Redemption and Purchase", the Issuer shall have the option, subject to it having received the
consent of the FINMA, to redeem, in whole but not in part, the Notes at their principal amount, together with
any accrued and unpaid interest up to (but excluding) the redemption date.
During the period when the Issuer may elect to redeem the Notes, the market value of the Notes generally
will not rise substantially above the price at which they can be redeemed. This may also be true prior to any
redemption period.
The Issuer may be expected to redeem the Notes when its cost of borrowing is lower than the interest rate on
the Notes. At those times, an investor generally would not be able to reinvest the redemption proceeds at an
effective interest rate as high as the interest rate on the Notes being redeemed and may only be able to do so
at a significantly lower rate. Potential investors should consider reinvestment risk in light of other
investments available at that time.
No public market exists for the Notes, because the Notes are a novel type of securities, there are
uncertainties regarding the existence of any trading market for the Notes
Because the Notes contain a so-called Write-Off clause, pursuant to which the Notes will be written-off upon
a Non-Viability Event, the Notes are a novel type of securities for which there is currently no active trading
market. Although application has been made to the Luxembourg Stock Exchange for the listing of the Notes
on the Official List of the Luxembourg Stock Exchange and admission to trading on the Luxembourg Stock
Exchange's regulated market, there can be no guarantee that such applications will be accepted or that an
active trading market in the Notes will develop. Accordingly, there can be no assurance as to the
development or liquidity of any trading market for the Notes. Illiquidity may have a severely adverse effect
on the market value of the Notes.
If the Notes are traded after their initial issuance, they may trade at a discount to their issue price, depending
upon prevailing interest rates, the market for similar securities, general economic conditions, fluctuations in
the Guarantor's capital ratios and investors' general perception of the credit risk of the Guarantor. Therefore,
investors may not be able to sell their Notes easily or at prices that will provide them with a yield
comparable to similar investments that have a developed secondary market.
0061297-0000314 ICM:13992691.4 12The market value of the Notes may be influenced by unpredictable factors
Many factors, most of which are beyond the Issuer's or the Guarantor's control, will influence the value of
the Notes and the price, if any, at which securities dealers may be willing to purchase or sell the Notes in the
secondary market, including:
· the creditworthiness of the Issuer and the Guarantor and, in particular, the level of the Guarantor's
capital ratio or perceived viability from time to time;
· supply and demand for the Notes; and
· economic, financial, political or regulatory events or judicial decisions that affect the Issuer and the
Guarantor or the financial markets generally.
Accordingly, if a holder sells its Notes in the secondary market, it may not be able to obtain a price equal to
the principal amount of the Notes or a price equal to the price that it paid for the Notes.
In certain instances the Issuer could substitute or vary the terms of the Notes
If at any time the Notes are not eligible to be treated as Tier 2 Instruments (as defined in the Conditions)
under the laws of Switzerland, in addition to its option to redeem the Notes, the Issuer has the option,
without the need for any consent of the Noteholders, to substitute all (but not some only) of the Notes for, or
vary the terms of the Notes so that they remain or, as appropriate, become, Compliant Notes (as defined in
the Conditions), as described under ‘‘Terms and Conditions of the Notes—Redemption, Substitution,
Variation and Purchase’’. While the Issuer cannot make changes to the terms of the Notes that materially
adversely affect the collective rights of Noteholders, no assurance can be given as to whether any of these
changes will negatively affect any particular Noteholder. In addition, the tax and stamp duty consequences of
holding such substituted or varied Notes could be different for some categories of Noteholders from the tax
and stamp duty consequences for them of holding the Notes.
The Issuer's and the Guarantor's obligations in respect of the Notes are subordinated
The Issuer's obligations under the Notes will be unsecured and subordinated. The claims of the holders in
respect of the Notes will, in the event of an order being made, or an effective resolution being passed, for the
winding-up of the Issuer or as a result of insolvency proceedings (including liquidation, bankruptcy, désastre
or other insolvency proceedings) having commenced in respect of the Issuer, and subject to and to the extent
permitted by applicable law, rank (a) junior to all claims of holders of unsubordinated obligations of the
Issuer and (b) pari passu with each other and at least pari passu with all other subordinated obligations of the
Issuer.
The Guarantor’s obligations under the Guarantee will be unsecured and subordinated. The claims of the
Noteholders and Couponholders against the Guarantor in respect of the Guarantee will, in the event of an
order being made, or an effective resolution being passed, for the winding-up or other form of liquidation of
the Guarantor (subject to and to the extent permitted by applicable law), rank (a) junior to all claims of
creditors of the Guarantor whose claims are in respect of debt and other obligations (including those in
respect of bonds, notes, debentures and guarantees) which are unsubordinated and (b) pari passu with each
other and at least pari passu with all other subordinated obligations of the Guarantor, provided that any
amount payable to the Noteholders and Couponholders shall in this circumstance not exceed the amount that
would be paid as a liquidation distribution out of the assets of the Guarantor had the Notes ranked pari passu
with the obligations of the Guarantor ranking pari passu in respect of Tier 2 Instruments. Any amount paid
by the Issuer in respect of the Notes will discharge the obligations of the Guarantor pursuant to the
Guarantee in respect thereof and to that extent and vice versa.
0061297-0000314 ICM:13992691.4 13By virtue of such subordination, (i) in relation to the Issuer but without prejudice to the rights of the Noteholders and the Couponholders under the Guarantee, the claims of holders of all unsubordinated obligations of the Issuer will first have to be satisfied in any winding-up or analogous proceedings of the Issuer before the Noteholders or Couponholders may expect to receive from the Issuer any recovery in respect of their Notes or matured but unpaid Coupons and (ii) in relation to the Guarantor but without prejudice to the rights of the Noteholders and the Couponholders against the Issuer, the claims of holders of all unsubordinated obligations of the Guarantor will first have to be satisfied in any winding-up or analogous proceedings of the Guarantor before the Noteholders or Couponholders may expect to receive from the Guarantor any recovery in respect of their Notes or matured but unpaid Coupons. A Noteholder may therefore recover less than the holders of unsubordinated liabilities of the Issuer and the Guarantor. Furthermore, the Conditions will not limit the amount of the liabilities ranking senior to, or pari passu with, the Notes or the Guarantee, as the case may be, which may be incurred or assumed by the Issuer and/or the Guarantor from time to time, whether before or after the Issue Date. Subject to applicable law, no Noteholder or Couponholder may exercise, claim or plead any right of set-off, compensation or retention in respect of any amount owed to it by the Issuer and/or the Guarantor in respect of, or arising under or in connection with, the Notes and each Noteholder and Couponholder shall, by virtue of his holding, be deemed to have waived all such rights of set-off, compensation or retention. Although the Notes may pay a higher rate of interest than comparable notes which are not subordinated, there is a real risk that an investor in the Notes will lose all or some of his investment should the Issuer have its affairs declared en état de désastre or analogous insolvency proceedings occur in respect of it, and/or the Guarantor becomes insolvent or analogous insolvency proceedings occur in respect of it. Noteholders' right to receive repayment of the principal amount of the Notes and the Couponholders' right for any further interest will be written-off upon the occurrence of a Non-Viability Event By subscribing for or otherwise acquiring the Notes, the Noteholders have irrevocably waived their right to receive repayment of the principal amount of the Notes and the Couponholders have irrevocably waived their right to receive repayment of any interest (including interest accrued but unpaid up to the date of the occurrence of a Non-Viability Event) (the Write-Off). Further to such Write-Off, the Noteholders and Couponholders no longer have any rights against the Issuer and the Guarantor with respect to such amounts. All Notes will, following the occurrence of a Non-Viability Event, forthwith be cancelled, together with all relative unmatured Coupons attached to the Notes. A Write-Off shall not constitute an Event of Default under the Conditions. A Non-Viability Event will occur where (a) FINMA has notified the Guarantor that it has determined that Write-Off of the Notes, together with the conversion, write down or write off of holders’ claims in respect of any other Tier 2 Instruments and Tier 1 Instruments (as defined in the Conditions) that, pursuant to their terms or by operation of law are capable of being converted into equity, written down or written off at that time, is an essential requirement to prevent the Guarantor from becoming insolvent, bankrupt or unable to pay a material part of its debts as they fall due, or from ceasing to carry on its business, because customary measures to improve the capital adequacy of the Guarantor are at the time inadequate or infeasible; or (b) customary measures to improve the capital adequacy of the Guarantor being at the time inadequate or infeasible, the Guarantor has received an irrevocable commitment of extraordinary support from the Public Sector (as defined in the Conditions) (beyond customary transactions and arrangements in the ordinary course) that has or imminently will have the effect of improving the capital adequacy of the Guarantor, without which, in the determination of FINMA, the Guarantor would have become insolvent, bankrupt, unable to pay a material part of its debts as they fall due or unable to carry on its business. The circumstances triggering a Write-Off are unpredictable 0061297-0000314 ICM:13992691.4 14
The occurrence of a Non-Viability Event is inherently unpredictable and depends on a number of factors, many of which are outside of the Issuer's and the Guarantor's control. The occurrence of a Non-Viability Event is subject to, inter alia, a subjective determination by FINMA, the regulator of the Guarantor, the federal government or central bank requiring the Guarantor to accept support from the Public Sector. As a result, FINMA may require or the federal government may cause a Write-Off in circumstances that are beyond the control of the Issuer and the Guarantor and with which neither the Issuer nor the Guarantor agree. Risks related to the Notes generally Set out below is a brief description of certain risks relating to the Notes generally: Modification The conditions of the Notes contain provisions for calling meetings of Noteholders to consider matters affecting their interests generally. These provisions permit defined voting majorities to bind all Noteholders including Noteholders who did not attend and vote at the relevant meeting and Noteholders who voted in a manner contrary to the majority. The conditions of the Notes also provide that the Issuer and the Guarantor may permit, without the consent of the Noteholders or Couponholders, any modification of any of the provisions of the Notes or any of the provisions of the Agency Agreement (as defined below), in the circumstances described in Condition 13. Limited Remedies The only events of default in the Conditions are if (a) if default is made in the payment of any principal in respect of the Notes or interest due in respect of the Coupons or any of them and the default continues for a period of 10 days in the case of principal or 30 days in the case of interest (the Payment Default) or (b) the Issuer has its affairs declared en état de désastre, or an order is made or a resolution is passed for the winding-up, dissolution or liquidation of the Issuer or a winding-up or other form of liquidation of the Guarantor (other than a winding-up which has been approved previously by an Extraordinary Resolution (as defined in the Agency Agreement) of the Noteholders) (an Insolvency Event). The holder of any Note may give notice to the Issuer that the Note is, and it shall accordingly forthwith become, immediately due and repayable at its principal amount, together with interest accrued to the date of repayment, if any, upon the occurrence of an Insolvency Event. Upon the occurrence of a Payment Default, only the payment having caused the Payment Default will become immediately due and payable by the Issuer and the Notes will not be accelerated. Furthermore, by virtue of the Guarantee, upon the occurrence of an Insolvency Event or a Payment Default, the payment obligations on the Notes (in the case of a Payment Default, only the payment which caused the Payment Default) shall be deemed due and payable (fällige) payment obligations of the Guarantor, and if such payment has not been made within the statutory period after the Noteholder has formally requested payment and a writ of payment (Zahlungsbefehl) has been issued as provided by the Swiss insolvency laws, such Noteholder may institute proceedings against the Guarantor in Switzerland (but not elsewhere) to enforce its rights under Swiss insolvency laws. Therefore, it will only be possible for the Noteholders to enforce claims for payment of principal or interest of the Notes or the Guarantee when the same are due and payable. In addition, in the event of an order being made, or an effective resolution being passed, for the winding-up of the Issuer or as a result of insolvency proceedings (including liquidation, bankruptcy, désastre or other insolvency proceedings) having commenced in respect of the Issuer (subject to and to the extent permitted by applicable law), the rights and claims of the Noteholders and the Couponholders against the Issuer will be subordinated in accordance with Condition 2.2 thereof. Accordingly, the claims of holders of all 0061297-0000314 ICM:13992691.4 15
unsubordinated obligations of the Issuer will first have to be satisfied in any winding-up or analogous proceedings of the Issuer before the Noteholders or Couponholders may expect to receive from the Issuer any recovery in respect of their Notes or matured but unpaid Coupons and prior thereto the Noteholders and Couponholders will have only limited ability to influence the conduct of such winding-up or analogous proceedings. Furthermore, in the event that an order is made, or an effective resolution is passed, for the winding-up or other form of liquidation of the Guarantor (subject to and to the extent permitted by applicable law), the rights and claims of the Noteholders and the Couponholders under the Guarantee will be subordinated in accordance with Condition 3.3 thereof. Accordingly, without prejudice to the rights of the Noteholders and the Couponholders against the Issuer, the claims of holders of all unsubordinated obligations of the Guarantor will first have to be satisfied in any winding-up or analogous proceedings before the Noteholders or Couponholders may expect to obtain from the Guarantor any recovery pursuant to the Guarantee in respect of their Notes or matured but unpaid Coupons and prior thereto the Noteholders and Couponholders will have only limited ability to influence the conduct of such winding-up or analogous proceedings. EU Savings Directive Under EC Council Directive 2003/48/EC on the taxation of savings income (the Directive), Member States are required to provide to the tax authorities of another Member State details of payments of interest (or similar income) paid by a person within its jurisdiction to an individual resident in that other Member State or to certain limited types of entities established in that other Member State. However, for a transitional period, Luxembourg and Austria are instead required (unless during that period they elect otherwise) to operate a withholding system in relation to such payments (the ending of such transitional period being dependent upon the conclusion of certain other agreements relating to information exchange with certain other countries). A number of non-EU countries and territories including Switzerland have adopted similar measures (a withholding system in the case of Switzerland). The European Commission has proposed certain amendments to the Directive, which may, if implemented, amend or broaden the scope of the requirements described above. If a payment were to be made or collected through a Member State which has opted for a withholding system and an amount of, or in respect of, tax were to be withheld from that payment, neither the Issuer nor any Paying Agent nor any other person would be obliged to pay additional amounts with respect to any Note as a result of the imposition of such withholding tax. The Issuer is required to maintain a Paying Agent in a Member State that is not obliged to withhold or deduct tax pursuant to the Directive. Change of law The conditions of the Notes are based on English law, except that Conditions 3.3 and 6 are governed by Swiss law, each as in effect at the date of this Prospectus. No assurance can be given as to the impact of any possible judicial decision or change to English law or Swiss law or administrative practice in England or Switzerland after the date of this Prospectus. Denominations involve integral multiples: definitive Notes The Notes have denominations consisting of a minimum of €50,000 plus one or more higher integral multiples of €1,000. It is possible that the Notes may be traded in amounts that are not integral multiples of €50,000. In such a case a holder who, as a result of trading such amounts, holds an amount which is less than €50,000 in his account with the relevant clearing system at the relevant time may not receive a definitive Note in respect of such holding (should definitive Notes be printed) and would need to purchase a principal amount of Notes such that its holding amounts to €50,000. 0061297-0000314 ICM:13992691.4 16
If definitive Notes are issued, holders should be aware that definitive Notes which have a denomination that is not an integral multiple of €50,000 may be illiquid and difficult to trade. Risks related to the market generally Set out below is a brief description of the principal market risks, including liquidity risk, exchange rate risk, interest rate risk and credit risk: Exchange rate risks and exchange controls The Issuer will pay principal and interest on the Notes and the Guarantor will make any payments under the Guarantee in euros. This presents certain risks relating to currency conversions if an investor's financial activities are denominated principally in a currency or currency unit (the Investor's Currency) other than euro. These include the risk that exchange rates may significantly change (including changes due to devaluation of the euro or revaluation of the Investor's Currency) and the risk that authorities with jurisdiction over the Investor's Currency may impose or modify exchange controls. An appreciation in the value of the Investor's Currency relative to euro would decrease (1) the Investor's Currency-equivalent yield on the Notes, (2) the Investor's Currency-equivalent value of the principal payable on the Notes and (3) the Investor's Currency-equivalent market value of the Notes. Government and monetary authorities may impose (as some have done in the past) exchange controls that could adversely affect an applicable exchange rate. As a result, investors may receive less interest or principal than expected, or no interest or principal. Interest rate risks Investment in the Notes involves the risk that subsequent changes in market interest rates may adversely affect the value of them. The interest rate on the Notes will reset on the Reset Date, which can be expected to affect the interest payment on an investment in the Notes and the market value of the Notes The Notes will initially earn interest at the fixed rate of 8 per cent. per annum until (but excluding) the Reset Date (unless previously redeemed or cancelled). From (and including) the Reset Date, however, the interest rate will be reset to a rate, which will equal the aggregate of the Margin and the 5 year Swap Rate. This reset rate could be less than 8 per cent. and could affect the market value of an investment in the Notes. Credit ratings may not reflect all risks The credit ratings assigned to the Notes may not reflect the potential impact of all risks related to structure, market, additional factors discussed above, and other factors that may affect the value of the Notes. A credit rating is not a recommendation to buy, sell or hold securities and may be revised or withdrawn by the rating agency at any time. In general, European regulated investors are restricted under Regulation (EC) No. 1060/2009 (as amended) (the CRA Regulation) from using credit ratings for regulatory purposes, unless such ratings are issued by a credit rating agency established in the EU and registered under the CRA Regulation (and such registration has not been withdrawn or suspended), subject to transitional provisions that apply in certain circumstances whilst the registration application is pending. The list of registered and certified credit rating agencies published by ESMA on its website in accordance with the CRA Regulation is not conclusive evidence of the status of the relevant rating agency included in such list, as there may be delays between certain supervisory measures being taken against a relevant rating agency and the publication of the updated ESMA list. 0061297-0000314 ICM:13992691.4 17
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