The Swedish Corporate Bond Market and Bondholder Rights

Annex A. Methodology for data collection and classification

Corporate bond data

Data presented on corporate bond issuances are based on OECD calculations using data obtained from Thomson Reuters Eikon that provides international deal‑level data on new issues of corporate bonds that are underwritten by an investment bank. The database provides a detailed set of information for each corporate bond issue, including the identity, nationality and sector of the issuer; the type, interest rate structure, maturity date and rating category of the bond, the amount of and use of proceeds obtained from the issue.

Convertible bonds, deals that were registered but not consummated, preferred shares, sukuk bonds, bonds with an original maturity less than or equal to one year or an issue size less than USD 1 million are excluded from the dataset. The analyses in the report are limited to bond issues by non‑financial companies. The industry classification is carried out based on Thomson Reuters Business Classification (TRBC). First-level industry groups (TRBC Economic Sector) are used for all analyses except for those involving real estate companies. These companies are included in the financials first-level group, so to identify them a second-level industry group (TRBC Industry Group) is used. Only companies classified as active within real estate operations are included. REITs are excluded. The country breakdown is carried out based on the issuer’s country of domicile. Yearly issuance amounts initially collected in USD were adjusted by 2020 US Consumer Price Index (CPI). Information provided in monthly frequency is collected and presented in USD.

Given that a significant portion of bonds are issued internationally, it is not possible to assign such issues to a certain country of issue. For this reason, the country breakdown is carried out based on the country of domicile of the issuer. The advanced/emerging market classification is based on IMF country classification.

Rating data

Thomson Reuters Eikon provides rating information from three leading rating agencies: S&P, Fitch and Moody’s. For each bond that has rating information in the dataset, a value of 1 to the lowest credit quality rating (C) and 21 to the highest credit quality rating (AAA for S&P and Fitch and Aaa for Moody’s) is assigned. There are 11 non-investment grade categories: five from C (C to CCC+); and six from B (B- to BB+). There are ten investment grade categories: three from B (BBB- to BBB+); and seven from A (A- to AAA).

If ratings from multiple rating agencies are available for a given issue, their average is used. Some issues in the dataset, on the other hand, do not have rating information available. For such issues, the average rating of all bonds issued by the same issuer in the same year (t) is assigned. If the issuer has no rated bonds in year t, year t‑1 and year t‑2 are also considered, respectively. This procedure increases the number of rated bonds in the dataset and hence improves the representativeness of rating‑based analyses. When differentiating between investment and non‑investment grade bonds, the final rating is rounded to the closest integer and issues with a rounded rating less than or equal to 11 are classified as non‑investment grade.

Early redemption data

When calculating the outstanding amount of corporate bonds in a given year, issues that are no longer outstanding due to being redeemed earlier than their maturity should also be deducted. The early redemption data are obtained from Thomson Reuters Eikon and cover bonds that have been redeemed early due to being repaid via final default distribution, called, liquidated, put or repurchased. The early redemption data are merged with the primary corporate bond market data via international securities identification numbers (i.e. ISINs).

Covenant data

Covenant data are collected from Thomson Reuters Eikon. The Eikon screen provides different flags indicating whether or not the instrument in question has a certain type of covenant. The below flags were collected for all available Swedish bonds. Their descriptions, as provided by Thomson Reuters Eikon, are included.

• Collective Action Clauses flag: A yes/no (y/n) flag indicating whether the bond includes Collective Action Clauses (examples: LATAM global issues or Model CAC introduced on 1 January 2013 for all Eurozone Government bond issuance). A collective action clause allows a supermajority of bondholders to agree to a debt restructuring that is legally binding on all holders of the bond, including those who vote against the restructuring.

• Force Majeure flag: A y/n flag indicating if the offering document of the debt instrument contains events that constitute ‘events of defaults’. Force majeure events are usually defined as certain acts, events or circumstances beyond the control of the parties, for example, natural disasters or the outbreak of hostilities. A force majeure clause typically excuses one or both parties from performance of the contract in some way following the occurrence of such events. Its underlying principle is that on the occurrence of certain events which are outside a party’s control, that party is excused from, or entitled to suspend performance of all or part of its obligations. That party will not be liable for its failure to perform the obligations, in accordance with the clause.

• Negative Pledge flag: A y/n flag indicating that the issuer would not issue another bond of the same type in the future that would have a higher priority in case the issuer defaults.

• Sale Leaseback flag: A y/n flag where a ‘y’ means the issuer may not, and may not permit any (restricted) subsidiary to, enter into any sale and leaseback transaction, subject to exceptions.

• Change of Control Put flag: A y/n flag indicating whether there is a provision in the indenture or agreement that allows investors to put the asset, if there are specified changes in ownership control of the entity responsible for the servicing of the debt.

• Pari Passu flag: A y/n flag indicating that a debt instrument carries the same degree of ranking without any preference among other debt securities with similar ranking.

• Merger flag: A y/n flag indicating where ‘y’ would mean that the issuer may not consolidate or merge with or wind up into, or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions, to any person or entities.

• Default Events flag: A y/n flag indicating if the parties are freed from their obligations in the event of an act of God (flooding, hurricanes, etc.). For example, if the Issuer loses all of their assets in an earthquake rendering them unable to pay back investors.

• Sale of Assets flag: A y/n flag indicating if the issuer is prohibited from sale of assets which would cause the issuer to cease to exist or which could reduce the creditworthiness of the issuer.

• Keepwell Agreement flag: A y/n flag indicating if the instrument is backed by a keep-well agreement between the issuer and another entity, most often the parent of the issuer. A keep-well agreement is not an explicit guarantee, but benefits from the agreement provider in case of insolvency of the issuer.

• Cross Default flag: A y/n flag indicating if the issuer or guarantor or parent defaults on any of its debt instruments and the default continues beyond the grace period, then such event shall constitute a default on all of its debt instruments, which have equal priority of payment.

• Debt Incurrence Limitation flag: A y/n flag where ‘y’ means the issuer will not, and will not permit any of its (restricted) subsidiaries to incur any indebtedness except permitted indebtedness, if any.

Consultations

During the spring of 2022, the OECD carried out fact-finding missions where the team conducted consultations with representatives of both government institutions and high-level market participants, including the Swedish Riksbank, the Swedish Financial Supervisory Authority (Finansinspektionen), Nasdaq Stockholm, leading legal and financial advisors, as well as banks, issuers and trustees (in total around 40 experts). The experts offered their insights on the developments, strengths and weaknesses of the Swedish corporate bond market, and in many cases offered comments on a draft working version of this report. The results of the consultations have benefited the report greatly. The team gratefully acknowledges these important contributions.