Navigating the legal landscape of Eurobonds

Since their inception in the 1960s, Eurobonds have not only been proven to withstand the test of time but have also easily adapted and evolved to meet the changing needs of issuers and investors. One of the most remarkable aspects of this evolution is the scope of the governing laws under which Eurobonds can be issued.

The story of Eurobonds began in the 1960s when Autostrade per l’Italia, an Italian motorway network company, issued the first Eurobond under English law to raise funds for a major infrastructure project. This strategic decision was anchored in the robust legal principles and protection offered by English law, providing a solid and well-recognised foundation for this pioneering financial instrument.

Decades later, despite the turmoil of Brexit, English law remains the preferred choice for most issuers, with approximately 70% of all new issues of Eurobonds still issued under English law. This statistic not only demonstrates the enduring appeal but is also a testament to the confidence in the stability and efficiency of the English legal system, a key factor in the growth of the Eurobond market since its inception. 

The true strength of Eurobonds lies in their adaptability, and one of the key aspects is the scope of the governing laws under which they can be issued. The adaptation of the Eurobond market to support other jurisdictional governing laws has been a key factor in the market's growth, as it has allowed issuers to select a legal framework that best suits their needs and those of their investors. Today, looking across the more than 350,000* Eurobonds in circulation globally, 55* different governing laws have been utilised, providing choice to issuers and demonstrating the market’s resilience in navigating changes in the geopolitical landscape and responding to the evolving needs of both issuers and investors.

The choice of governing law shapes the characteristics of a Eurobond issuance, influencing and securing the rights available to investors and the issuer's obligations. Therefore, the choice of governing law is critical to both sides of the transaction and requires careful consideration by issuers and their legal advisors.

The diverse utilisation of governing laws for Eurobond issuances reflects the truly global nature of the Eurobond market and the varied legal requirements of both issuers and investors. This particular aspect also demonstrates the Eurobond market’s adaptability while maintaining its core characteristics of security, flexibility and liquidity.

Looking ahead, the role of governing laws in the Eurobond market will continue to evolve as more and more borrowers from around the globe continue to use it as a key source of funding. As the global financial landscape changes and evolves, issuers and investors may seek to utilise different governing laws that better suit their needs. For instance, with the increasing focus on sustainability, we may see a rise in the issuance of Eurobonds under laws that incorporate Environmental, Social and Governance (ESG) principles. This potential for change and adaptation keeps the Eurobond market dynamic and fit for purpose, offering new opportunities for issuers, investors and legal advisors.

Euroclear, as one of the two International Central Security Depositories (ICSDs), plays a crucial role in this evolving landscape. It facilitates the issuance and settlement of Eurobonds, ensures the smooth functioning of the market, and provides the necessary infrastructure and ancillary services to support its evolution. This role is significant and should provide reassurance to all capital market participants.

The historic journey of Eurobonds and the associated flexibility of their scope of governing laws underscore the innovative and adaptable nature of these financial instruments. Looking to the future, it is clear that Eurobonds will play an even more significant role in meeting the future needs of the global financial markets, offering issuers and investors a flexible and resilient financing solution that has been tried and tested over decades.

At Euroclear, we are proud to be part of this evolving story. Our role in facilitating the issuance and settlement of Eurobonds and connecting an extensive network of issuers and investors across the globe places us at the heart of this dynamic market.

As we endeavour to innovate further and adapt to better serve the needs of issuers and investors in this changing landscape, we are excited about the future and committed to continuing our work to support the evolution of the Eurobond market.