Recent bond defaults by Asian issuers have highlighted
problems with trustees. In a number of cases, certain trustees
have been reluctant, uncooperative or even obstructive when the
bond investors even a supermajority of bondholders
have tried to instruct a trustee to accelerate or
otherwise take action in respect of their investment.
In some cases there were delays of up to three to five weeks
before any action was taken by the trustee. This has raised a
number of concerns among bondholders as to how their
investments are structured at the outset, and whether some
changes to traditional market practice are now warranted to
address these concerns.
In a bond issuance, a company issues bonds to investors,
either directly or through a special purpose company. If bonds
are issued through a special purpose company, they will usually
be guaranteed by the corporate parent. Bondholders appoint a
trustee to, among...