Model covenants are no way to standardise

Author: | Published: 20 Aug 2010

On 21 June 2010, The Bond Covenant Group (TBCG) launched a set of model bond covenants designed to reduce event risk in investment grade Eurobonds and promote documentary standardisation. TBCG is an ad hoc group of investor bodies comprising The Association of British Insurers (ABI), the Investment Management Association, the National Association of Pension Funds and the Bundesverband Investment and Asset Management.

Covenants in investment grade Eurobonds have traditionally been light – often extremely so. Many have only a negative pledge and some (particularly by financial institutions but also some strong corporate credits) not even that. Any change is, therefore, likely to face some issuer resistance, but these proposals from TBCG have received a particularly cool reception. The Association of Corporate Treasurers for example, while supporting the concept of standardisation, has stated that it regards the proposals as more suitable for a non-investment grade bank loan than for an investment...