Bond Covenant And Its Protection For The Bondholders

The credit is the basis of corporate bond financing,the central issue of the bondholders protection is how to maintain the company's credit to restrain the risk.The protection significance of covenants for the bondholders is to achieve the balance of interests between shareholders and bondholders,and to achieve a balance in constraining risk,limiting the company behavior,ensuring the normal operation of the company and promoting the sustained profitability.The basic position of covenants in the bondholders protection is determined by the nature of bond debt relationship.In the course of development of Chinese bond market,the long-term deletion of covenants is not a normal phenomenon of market,it actually reflects the a deep-seated development problem of Chinese bond market——excessive regulation distorts the market logic of covenants.The protection of the interests of bondholders should be based on the risk constraints that above the logic of the market operation,and should not be abused by non market means to erode the bond financing business credit basis.With the development of Chinese bond market and the reform of the rule of law,the development bottleneck of the bond market caused by the financial repression policy needs to break through the deepening of the market.In terms of covenants,the market deepening provides the market validity premise and broader application space for the market-oriented risk control mechanism.Protecting the development of marketization by the achievement of the rule of law,respond to market demands in a timely manner,to promote the realization of the covenants of the constraints and the value of the bondholders protection,is an inevitable choice for the deepening reform of Chinese bond market.First of all,it should be based on the particularity of the bond contract itself,from the standardized guidance and gap filling two aspects of covenants to strengthen and optimize the protection function of covenants.The former emphasizes the establishment of the standard model and the strengthening of the covenants content control,in order to alleviate the limitations of the autonomy under the bond contract finalization;the latter emphasizes the rules of interpretation should be taken with special bond contracts and commercial contract,fill the gap protection of covenants when necessary,more comprehensively protect bondholders.In addition,the supporting system of corporate bonds also need to be improved:first,establish an efficient corporate bonds management system,reasonably allocate the rights and responsibilities of the trustee and the bondholders,use organized collective action to protect the execution of the system to enhance the dispersion characteristics caused by overcoming the holder,to realize the effective continuous supervision and management of the risk;second,constrain the credit rating agencies to provide fair,objective and accurate credit information,in the context of the deepening reform of the current market,in particular,should reshape the reputation mechanism to restrict the rating agencies fulfill their duties.