Pants to Poverty: a briefing on an innovative pro bono project

A Hogan Lovells partner explains how his team helped a social enterprise

At the end of last year, Hogan Lovells advised social enterprise Pants to Poverty on a bond issue which they hope will raise the organisation �250,000. The 100 10-year bonds, each of which cost �2500, have an 8.65 per cent annual coupon rate which, unusually, will be paid to investors in the form of quarterly supplies of fair trade, organic underwear and a donation of �14 in the investor's name to the Pi Foundation, a charity set up by Pants to Poverty to develop sustainable businesses in the fashion industry.

The Gateway spoke to capital markets partner Andrew Carey, who led the team working on the bond, to find out more.

What kind of work do you do at Hogan Lovells?

The core of my practice is corporate and sovereign bond issues, that is, debt finance for companies and for governments. That's why I was able to help Pants to Poverty - its bond is essentially a corporate bond.

Can you tell us more about Pants to Poverty and how you got involved with its work?

Pants to Poverty is not a charity but a social enterprise, and so is like any other company in the way that it is set up. A social enterprise aims to make money to sustain itself, rather than asking for donations as a charity would. It will get some cash from its founders' shareholdings, but this equity capital is unlikely to be enough to fund its growth so it needs to raise debt. Pants to Poverty is using this bond issue to fund its business in this way.

The investors in the bond are typically supporters of Pants to Poverty's principles who are impressed by the underlying social project. They won't get cash interest on their investment as they could elsewhere, but they're still expecting to get their money back when the bonds mature as they're making a loan, not a donation - plus they get their pants every three months of course!

I manage much of the pro bono work that the firm has, relating to tricky financial instruments, so I was brought in as a finance specialist on the Pants to Poverty bond.

How did you use your specialist knowledge of finance law to help Pants to Poverty?

All bond issues are regulated and we helped Pants to Poverty ensure that they were in compliance with the relevant legislation. We also looked at the terms of the financing documents to check that Pants to Poverty wasn't exposing itself to unnecessary risk. Finally, a reasonable chunk of our advice was on tax issues.

Did you give any more general advice?

I have quite a broad business law background and so was also able to give Pants to Poverty advice on corporate structure and employment issues.

How did working on this bond issue compare to the bond issues you work on for corporate clients?

The documents we used for the Pants to Poverty bond were much shorter than the ones we'd use for a conventional bond issue. We kept things as simple as we could. For example, we didn't put in all the mechanics for listing - they weren't needed here because the bonds won't be publicly traded.

However, because the bond was being potentially distributed to up to 100 investors, we built in voting provisions for collective investor action. We did so because when you have a large number of investors you don't want to be having conversations with each of them to make a decision in relation to the bond. So on this issue we used some concepts from the mainstream capital markets work that we do.

Were there opportunities for trainees and junior lawyers to get involved with the Pants to Poverty bond?

Absolutely - the trainee working with me at the time was heavily involved in drafting the documentation, with assistance from his direct supervisor and me. He was well placed to do this because at that point he had been in the capital markets group for about three months and so had seen a lot of our documentation and was familiar with the issues.

He also had a chance to liaise with Pants to Poverty directly. We tended to take their calls all together but he would take a prominent role - not just scribbling notes!

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