Covenants are particular clauses in the debt contracts of firms that restrict business policy, giving creditors the possibility of putting precise actions into force (normally early repayment) when the covenants are violated. The main purpose of covenants given in the literature is to resolve the conflicts of interest between shareholders and bondholders. Lack of coordination between bondholders may, however, reduce the efficiency of these instruments. We propose an applica- tion of the Italian law allowing the insertion of a mandatory representation into the new financial hybrid contracts to give an investment firm the right to act with full power on behalf of the bondholders. We show the impact of this proposal using a formalised example for the issuance of a bond with a covenant for a firm.

How to increase the efficiency of bond covenants: a proposal for the Italian corporate market

Bazzana, Flavio;Palmieri, Marco
2012-01-01

Abstract

Covenants are particular clauses in the debt contracts of firms that restrict business policy, giving creditors the possibility of putting precise actions into force (normally early repayment) when the covenants are violated. The main purpose of covenants given in the literature is to resolve the conflicts of interest between shareholders and bondholders. Lack of coordination between bondholders may, however, reduce the efficiency of these instruments. We propose an applica- tion of the Italian law allowing the insertion of a mandatory representation into the new financial hybrid contracts to give an investment firm the right to act with full power on behalf of the bondholders. We show the impact of this proposal using a formalised example for the issuance of a bond with a covenant for a firm.
2012
2
Bazzana, Flavio; Palmieri, Marco
File in questo prodotto:
File Dimensione Formato  
EJLE 2012.pdf

Solo gestori archivio

Tipologia: Versione editoriale (Publisher’s layout)
Licenza: Tutti i diritti riservati (All rights reserved)
Dimensione 298.65 kB
Formato Adobe PDF
298.65 kB Adobe PDF   Visualizza/Apri

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11572/85124
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus 2
  • ???jsp.display-item.citation.isi??? 2
social impact