The Bonds available through our Platform are of a type usually referred to as high-yield bonds. These are debt securities which have not been graded by any credit rating agency and have been issued by companies with lower or no credit ratings. As they represent a higher risk for the investor, they tend to give higher returns or interest payments. You should, however, be aware of some of the specific risks involved in investing in them.
High-yield bonds have a higher risk of default than rated debt instruments. This means that the issuer of these bonds is more likely to fail to meet payments of interest and principal and may have a higher risk of insolvency. This means a greater risk of loss of your capital or investing without return. Before any debt securities are offered on our site, our Principal reviews the Offer Documents as described in Investors’ Agreement but this cannot guarantee that you will be paid all amounts due under a high-yield bond.
Security may be insufficient
Some high yield bonds offered via our site will normally be secured as described in the offer materials but independent valuations may be inaccurate, the prices of assets held as security may fluctuate and it may be difficult to realize any security within a reasonable time or at all. The fact that a high-yield bond is secured, does not mean that repayment of interest or repayment of principal is bond is guaranteed.
Limited or no redemption rights
High yield bonds will typically have a maturity of 1-3 years but may be for longer. You may have no rights to cash them in early or sell them at any price (see “Illiquidity” below).
Uninvested cash is protected up to a maximum of £85,000 under the FSCS Deposit Protection Scheme. This limit applies per financial institution. Your uninvested cash with UKBN is ultimately held with NatWest, which is part of the Royal Bank of Scotland Group (“RBS Group”). As such, the £85,000.00 protection limit applies across all accounts you have with members of the RBS Group.
There is no specific compensation for funds invested in bonds when an issuer defaults under its obligations under the Financial Services Compensation Scheme ("FSCS"). However, under the FSCS investment scheme investors can claim up to £50,000 of compensation in the event that UKBN goes out of business or UKBN is proven to have been negligent in carrying out its role.
Although UKBN offer eligible Investors the ability to sell Bonds through our Platform, Bonds available for purchase through the Platform are considered Non Readily Realisable Securities under FCA Rules as they are generally not tradeable on any public market, and are unlikely to be admitted to any public market in future. Only other persons who have signed up to our Platform will be able to purchase any Bonds you are seeking to sell through our Platform, which may mean that you may find it difficult to exit your investment by selling to a third party at any price (included a discounted price).
You should consider spreading risk across different types of investments with different risks so you have a diversified portfolio, not one that consists only of high yield bonds. Likewise you should spread your investment in high-risk bonds across a number of issues.
Factors specific to the issuer and the industry in which it operates
Issuers of high-yield bonds offered through our site may not be major players in the industry in which they operate. They may not have been established for significant periods of time. They may therefore be more vulnerable to market downturns than their competitors.
The tax treatment of investment in bonds available through our site may change depending on the type of bond that is involved and your own personal circumstances. You should take independent advice where necessary.
Segregated Client Accounts
UK Bond Network do not hold client money including investment cash. Client money and client assets are held in the investor’s name by our FCA custodian Jarvis Investment Management who arrange settlement, safe custody, nominee and associated services in accordance with FCA rules. By entering into the Investor Agreement investors agree that Jarvis will act as their agent and will arrange for their cash and investments to be held in separately designated and protected accounts in accordance with FCA rules.
Buying and Selling Bonds in Issue
Purchasing Issued bonds
If you purchase bonds above par you will suffer a gradual capital loss as funds are repaid to you by the issuer. You will be however paid income greater than the loss, and so will achieve a net gain over the life of the investment (if held to maturity).
Most issuers have the ability to prepay (repay the bond early) at any point prior to or after the first anniversary of the bond subject to conditions in the Term Sheet. If the Issuer exercises this right, after the first anniversary of issue, you may suffer a capital loss greater than the income you have earned from the particular bond when the company repays it.
Selling Issued bonds
If you offer to sell your bonds below par value and the Offer is purchased by another investor, you will crystallise a capital loss on the amount of principal outstanding. This amount will be confirmed to you when placing an Offer.
Gains and losses in terms of income and capital gains are taxed at different rates. UKBN cannot provide tax advice, and as such you should seek advice from an independent tax adviser if you deem necessary.
Legal recourse for non-completion
Should you fail to settle a Transaction which has been agreed with another investor, whilst UKBN itself will not take any action you, the investor may have the right to take legal action against you for non-settlement.
In such circumstances UKBN may be obliged (for example by court order) to provide your name and correspondence address. As such, you should not enter into any transaction which you do not have the intention to settle.
UK Bond Network's discretion
UKBN can exercise discretion to prevent an offer being placed, or a purchase of an existing offer going through. This could be mean that even if there is a willing buyer of your Offer, they may not be able to purchase your bonds. Discretion could be exercised in such an instance if, for example, the purchaser was known to be a connected party to the issuing company.
You should consider carefully all the information available in relation to any high-yield bond in which you may invest including in particular the Offer Documents. We will in no circumstances give you advice. You should take independent professional advice as you consider necessary. Investment in high-yield bonds should only be considered as part of a diversified portfolio including assets of various types and risks.