Issuers weigh the case for stronger bond covenants

Author: | Published: 1 Jun 2005

The past two years have seen an increase in demand for safeguards for bondholders in the sterling and euro corporate bond markets. This has been brought into sharper focus by the recent leveraged buyout bids for companies such as ISS, Gecina and Galeries Lafayette, as well as the inclusion of event risk puts in the recent Wienerberger and Syngenta issues, all of which emphasized the potential importance of covenants protecting bondholders' investments. The challenge that lies ahead is to address the concerns of investors without upsetting the traditional balance between finance from borrowers' relationship banks (often the final port of call for rescue funding) and potentially cheaper funding from the bond markets.

This debate is not new in the UK, but was resurrected in October 2003 by a consultation group of fixed income investors throughout Europe, known as the Group of 26. They outlined a series of so-called best...