Revision of bond issuance conditions

Issue Terms and Conditions as the legal basis of a bond issue

Issue terms and conditions are a document that, under Section 8 et seq. of Act No. 190/2004 Coll., on Bonds, is mandatory for every issue in the Czech Republic. This is not an administrative tool, but a binding text creating the framework between the issuer and the bondholders. The Act clearly sets out their content, and any breach exposes the issuer to the risk of sanctions from the Czech National Bank.

In practice, we often see the importance of high-quality drafting underestimated, which leads to problems ranging from investors rejecting the issue to legal disputes. Our attorneys in Prague at ARROWS advokátní kancelář specialise in preparing and reviewing issue terms and conditions and routinely remedy legally weak texts so that they meet statutory requirements as well as the expectations of institutional investors.

What exactly the issue terms and conditions regulate

Issue terms and conditions regulate several key aspects. First, they include identification of the issuer, definition of the type and form of the bond, the nominal value, and the subscription period. A crucial part consists of information on the yield and the method of its payment, as well as the issue date and maturity date.

The document must also clearly specify whether and how the bonds are secured, or expressly state the absence of security. It also includes information on transferability, the right to early redemption, and processes for dealing with problems. In practice, these elements become the basis for court disputes if they are not drafted clearly.

Why precise wording is so important

The precise wording of the issue terms and conditions has a direct impact on the success of the issue and its administration. Investors study the terms carefully, and ambiguities discourage them. Vague clauses such as “the issuer reserves the right to change the terms” are perceived as an unacceptable risk.

Specific terms with precise descriptions of rights and numerical limits (covenants), on the other hand, build trust. The Czech National Bank increasingly checks whether the terms are misleading. Our Prague-based attorneys at ARROWS will ensure that your documentation meets statutory requirements and minimises legal risks.

New regulatory framework for bond issues (Listing Act)

Significant changes have occurred in capital markets thanks to Regulation (EU) 2024/2809, known as the “Listing Act”. The rules for accessing the market are being simplified, especially for small and medium-sized enterprises. The Czech Republic reflects this framework in the Capital Market Undertakings Act (ZPKT).

Issuers must carefully distinguish between offers requiring a full prospectus, a simplified prospectus, and below-threshold offers. Correctly determining the applicable regime is key to the legality of the entire issue and to avoiding sanctions.

Issue regimes and their content requirements

The system is structured into several basic regimes, depending on the issue volume and the type of offer:

1. Below-threshold public offers (up to EUR 1 million): Under Section 35 of the ZPKT, a public offer in the Czech Republic is not subject to the obligation to publish a prospectus if the value does not reach EUR 1 million over 12 months. Well-prepared issue terms and conditions are sufficient . This is the least administratively demanding regime.

2. Simplified regime (EU Growth / Follow-on): For issues above EUR 1 million, the Listing Act introduces simplification options. This is the so-called “EU Growth issuance document”. These documents have a standardised format and are subject to approval by the Czech National Bank (ČNB).

3. Full prospectus: For large issues or for issuers targeting a regulated stock exchange market, a full prospectus approved by the Czech National Bank (ČNB) is required. It contains detailed information on the financial situation, risk factors, and the issuer’s strategy.

Transitional period and practical implications

The new rules introduced by the Listing Act will be applied gradually, with key changes taking full effect in 2025 and 2026. Prospectuses approved before the new rules take effect remain valid until the end of their original period.

For issuers, it is essential to verify the Czech National Bank’s current practice. Incorrect classification of an issue may lead to severe sanctions. Our attorneys in Prague at ARROWS advokátní kancelář will assess which regime your issue falls under and how to use the new simplifications.

Content and structure of issue terms and conditions: What must not be missing

Issue terms must include a number of mandatory elements under Section 9 et seq. of the Bonds Act. The absence of any of them may result in a defective issue and a CNB fine of up to CZK 15 million. Sufficient detail on risks or the repayment method is often missing.

Mandatory elements of the issue terms

The issue terms must, at a minimum, include the following information:

• the issuer’s identification details (name, registered office, Company ID No.),
• designation of the bonds (name, ISIN – if assigned),
• the nominal value and the total expected value of the issue,
• information on the yield (rate, calculation, payment, taxation),
• issue date, maturity date and issue price,
• the type and form of the bond, the method and place of subscription and repayment,
• information on security or the absence of security,
• the right to early redemption and information on the bondholders’ meeting,
• a reference to financial statements and CNB supervision (or the absence thereof).

If the bonds are offered to the public, the issuer must ensure that the information is true and not misleading. ARROWS, a Prague-based law firm, will provide complete preparation of the documentation with a guarantee that all mandatory elements are included.

Security and covenants: How to formulate undertakings

Security is key to investor confidence. The issue terms must distinguish whether the security is created directly for the bondholders or via an agent. For real estate, the pledge must be duly registered in the Cadastral Register.

Covenants are also important, such as limits on indebtedness or a prohibition on disposing of assets. The wording must be precise and define the consequences of a breach. Vague covenants are legally unenforceable and do not protect investors.

Risks: From wording to communication

The issue terms must describe specific risks for the particular issuer, not merely general statements. In development projects, it is necessary to mention risks of the real estate market or the construction permitting process.

It must be clearly stated that the bonds are not insured by the Financial Market Guarantee System. Investors must know that, in the event of the issuer’s insolvency, they may lose their entire investment.

Typical mistakes when preparing issue terms

In practice, we see recurring mistakes that lead to the issue being rejected by the market or to sanctions. Common examples include vague wording such as “the issuer will inform about important changes” without specifying the deadline and method.

Another mistake is stating security that has not actually been created. If the terms promise security over assets but there is no registration in a public register or no agreement with an agent, this misleads investors and the bond is, in fact, unsecured.

Table of risks and opportunities

Review of existing issue terms

The review of issue terms is governed by Section 21 et seq. of the Bonds Act. As a rule, any change requires the consent of the bondholders’ meeting, in particular in the event of the issuer’s default or a material change in circumstances.

Procedural steps in a review

The issuer must convene a bondholders’ meeting and publish a notice in a nationwide daily newspaper unless the terms provide otherwise. To adopt fundamental changes, consent of 75% of the nominal value of the bonds present is required, along with a notarial deed. ARROWS, a Prague-based law firm, will guide you through the entire process.

Specific regulatory aspects in the Czech Republic

The CNB monitors compliance with the law, but for issues without a prospectus it does not assess the issuer’s creditworthiness or the riskiness of the investment. Supervision is limited to formal requirements and the prohibition of unfair practices.

In 2024, the CNB is focusing on greenwashing and hidden public offers (chaining of issues). ARROWS attorneys represent clients in inspections and help set up preventive compliance processes.

The role of a lawyer and specialist

Preparing issue terms requires knowledge of the Bonds Act and related regulations. Using templates from the internet is extremely risky because each issue has its own specifics regarding security or subordination.

Our portfolio includes more than 150 joint-stock companies for which we arrange financing. The lawyer’s role is to set the parameters so that they are legally robust and commercially successful. ARROWS can also provide the function of Issue Administrator.

Table – Practical steps in preparation

Conclusion

Bond terms and conditions are a fundamental prerequisite for successful financing. Properly set terms protect the issuer from fines and give investors certainty. With the introduction of new rules under the EU Listing Act, it is important to have your documentation in order. If you are considering issuing bonds or need a review, contact us at consultation@arws.cz.

Read also:

• Do Your Board Minutes Pass the Test? How Courts Treat Corporate Resolutions in the Czech Republic
• Can I Be Personally Liable as a Director of a Czech Company?
• How to Structure Intercompany Agreements in a Holding to Avoid Disputes and Tax Risk
• Share Deal vs Asset Deal in the Czech Republic: Key Tax Implications for 2026
• Entry to the EU through acquisition: A guide for non-EU buyers