The Research Of Restrictiveness Of Bond Covenants

Debt contract is a contract between the issuer and the bondholders, the bond issuer all his obligations under the contract. Bond contract evaluation is in addition to the bond credit rating a new way of evaluation, in addition to the credit rating system to supplement and perfect, there are many other important role.In the current market environment, many enterprises internal and external double pressure, often at the expense of the interests of creditors in return for shareholders, so bond investors are increasingly concerned about event risk. Because of a lot of debt contract constraint in the lack of meaningful terms, will make them exposed to the potential credit losses. In such cases, well-designed contract can protect bondholders, especially for "based on a specific event" of credit risk.The purpose of this paper is to study the bond market contract, imitate the moody’s advanced evaluation method, a quantitative restriction on contract force evaluation, so as to make in-depth research. The quality of the final assessment framework to determine the key terms of the contract, the contract clause is critical in protecting bondholders, can help to protect investors from unforeseeable negative credit event, therefore, this article contract limit evaluation and study of these key terms in detail.In addition, in view of the quantitative evaluation of the results, we are part of the study include:contract limiting total score will be of force changes with the change of the terms of a single, the restriction force and before the company’s bonds and what is the difference between debt contract, multivariate environment restriction force is continuous, contract restriction force are main factors which influence and so on. Results supports more rigid hypothesis, debt contract and can find bond contract package limit force is continuous with the passage of time, can be regarded as "sticky" contract.Finally, based on the results of this article, we point out that strengthen the debt contract signing, implementation and so on examination and supervision work, mainly rely on to establish an optimal or efficient contract or contract, can encourage or induce the behavior of the agent want choice principal, and make the client according to the observed information on the behavior of the agent for rewards and punishments or specification. In debt contracts or contracts for creditors, dealing with repeated scrutiny on contract terms and conditions of the loan restrictions of the behavior of the state-owned enterprises. In order to prevent the risk of moral hazard, should be in a loan contract with all sorts of avoid the risk of "safeguard clause" or "restrictive clause".