COVID-19: ICMA issues COVID-19 guidance on its standard force majeure clause | Practical Law

COVID-19: ICMA issues COVID-19 guidance on its standard force majeure clause | Practical Law

ICMA issues COVID-19 guidance on its standard force majeure clause contained in Appendix 9A of its Primary Market Handbook.

COVID-19: ICMA issues COVID-19 guidance on its standard force majeure clause

Practical Law UK Legal Update w-024-7894 (Approx. 3 pages)

COVID-19: ICMA issues COVID-19 guidance on its standard force majeure clause

by Practical Law Finance
Published on 01 Apr 2020 • International
ICMA issues COVID-19 guidance on its standard force majeure clause contained in Appendix 9A of its Primary Market Handbook.
On 27 March 2020, the International Capital Market Association (ICMA) issued guidance on its standard force majeure clause used in subscription agreements for syndicated bond offerings (Appendix 9A to its Primary Market Handbook). Specifically, ICMA highlights the following aspects of the clause:
  • The force majeure clause is designed for use during the narrow window of signing the subscription agreement and settlement of the bond issuance.
  • Although reliance on the clause has been discussed by market participants during previous crises, ICMA is not aware of any manager actually terminating a subscription agreement for an international bond offering in Europe in reliance on the clause.
ICMA further stated that it will be for the managers of a new bond issue, in consultation with their legal advisers, to determine whether they believe they have a right to terminate a subscription agreement pursuant to this clause in any given set of circumstances. In particular, it understands the clause is comprised of two limbs to be determined in the opinion of the lead manager:
  • An event which constitutes a "change in national or international financial, political or economic conditions…."
  • The event must be of such consequence that it would be likely to prejudice materially the success of the offering and distribution of the bonds or dealings in the bonds in the secondary market.
If both these limbs were to be fulfilled, then the managers may consider that they have a right to terminate the subscription agreement pursuant to the force majeure clause.
ICMA stated that its Legal & Documentation Committee, together with major international capital markets law firms, have considered the effectiveness of the clause in the context of the COVID-19 pandemic and determined that no changes should be made to it.
For more information on bond documentation, see Practice note, Bond issues: documents.