Performance-linked Notes – Structure and characteristics

Nicosia – Performance-linked Notes (PLNs) are debt instruments, usually a bond, that differs from a standard fixed-income security in that the regular and final payouts are based on the return of the underlying asset, which can be a portfolio of securities, equity indices, real estate assets, investment funds, private equity investments, or any combination of all the aforementioned. 

Using Performance Linked Notes can be an efficient, flexible and cost-effective structure, which can be setup very quickly with regulatory approval.

In order to secure regulatory approval to market the Performance Linked Notes throughout the EU27 and beyond, the PLNs are listed on the Vienna Stock Exchange’s MTF Market (“Vienna MTF”).

A unique ISIN is provided which promoters may provide to potential investors who can then look it up for additional information. The ISIN can also be uploaded on Bloomberg or Reuters terminals. 

The proceeds of the Performance Linked Notes are invested in an underlying asset (or pool of assets) with investors taking the benefit or loss of investment. Thus, when the performance of the underlying asset increases, the Net Asset Value increases and when there are losses, the NAV declines. This resembles the performance of a fund unit which is based on the NAV.

Here are the simple steps to follow:

1. Special Purpose Vehicle (SPV) issues Performance Linked Notes, minimum amount €200.000 or equivalent, in any major currency, paying no interest and providing no guarantee.
2. When the performance of the underlying asset is positive, the NAV increases, when there are losses, the NAV declines with the investor(s) sharing the benefit or the loss through the NAV change.
3. The Listing Agent will list the Performance Linked Notes on the Vienna MTF through submission of Information Memorandum (no prior history required), dematerialize and deliver registry electronically to the depository, secure ISIN, and act as Listing Agent. 
4. Promoter is entitled to charge management and administrative fees. All cost details will be included in the Information Memorandum. Issuer is also entitled to charge a performance fee when asset performance surpasses the performance of a benchmark also clearly identified in the IM.
5. All terms and conditions including methodology of trading, management, participation in profits, as well as other details will be included in Information Memorandum submitted by the Listing Agent.