Legal Regulation And Application Of Bond Cross-default Clauses

The bond cross-default clause establishes a connection network between different debts to connect the debts related to the issuer,so as to achieve the expected purpose of keeping bondholders informed of changes in the credit status of the issuer in a timely and effective manner,and then realize the role of risk early warning.Compared with foreign countries,bond cross-default clauses in China exhibit an abnormal phenomenon of low setting rate and high trigger rate.A high percentage of recent bond default events are bond defaults that are triggered by cross-default clauses in bond prospectuses.Contrary to the original intention of the setting,the cross-default clauses of bonds have not played a good role in risk early warning in our country's practice.Instead,they have become the initiator of a large number of bonds that have defaulted.This clause was originally introduced as an important tool to reduce financing costs and prevent market risks.However,in application,it has brought greater liquidity pressure to the issuer,and even directly caused the capital chain to break,resulting in a secondary crisis.This has led to large-scale defaults,triggering organizational risks and disrupting the normal order of bond transactions.Although the bond cross-default clause is an expression of commercial habit of resorting to contracts,the impact will not only affect bond issuers and investors,but the secondary crisis it brings is likely to break through the debt network and become a market instability factor.At this stage,cross-default The unclear expression of terms and the poor connection with the supporting system have further aggravated market risks.Judging from the current status of the use of cross-default clauses in China's bonds,there is a problem of applicable low ratio and high trigger rate in terms of macro data statistics.Compared with the situation where bond cross-default clauses are also common in bonds issued by Chinese companies overseas,the proportion of cross-defaults in China's domestic bonds is low,but the low setting ratio does not detract from the risk of cross-default: due to triggering bonds The number of defaulted bonds due to cross-default clauses accounted for a higher proportion of the total number of defaulted bonds.In terms of the specific design of the clauses,there are problems such as the lack of clearly stated related parties and the scope of debts,the trigger threshold is set too low or no trigger threshold,the agreement on the relief and exemption mechanism is unclear,and there is a lack of default resolution mechanism.On the one hand,bonds have the nature of commercial contracts as commercial contracts;on the other hand,the terms of bond contracts are not the same as ordinary civil contracts,and they have the nature of securities with a wide range of stakeholders.Bonds issued to the public are inevitably broken down into smaller units of securities,and then achieve the purpose of large-scale high-level financing after a single issuance,and each time the scale of financing is as high as hundreds of millions or even billions.A bond contract does not only involve a contract between two parties,nor does it involve a contract between a fixed number of parties that can be foreseen.As far as bond issuers are concerned,the higher financing scale and wider creditor distribution determine the bond issuer 's stakeholder obligations.It is the bond 's stakeholder nature that leads to stricter supervision and regulation than other loan contracts..The path of bond risk resolution in the US bond market has also undergone ups and downs,from the initial exploratory supervision to a relatively open market autonomy.After the market autonomy has appeared a contradiction that the market is difficult to adjust itself,it finally returns to the appropriate intervention of the regulatory authorities..And finally explored a relatively mature way to prevent and resolve bond risks.The issuance and purchase of bonds is centered on bond contracts,and the relevant regulations of bond cross-default should be based on the commercial nature of bond contracts.With regard to the determination of the effectiveness of the cross-default clauses of bonds,it is not possible to easily deny the effectiveness of the clauses themselves or reduce the application of the clauses because of the seriousness of the risks that they may cause.On the contrary,on the premise of recognizing the autonomy of both parties,it should be regulated through normative guidance and mandatory provisions of necessary matters,and the application of cross-default clauses of bonds should be encouraged to exert its early warning function,reduce agency costs,and reduce The function of financing costs.The Civil Law is concerned with the substantive fairness of both parties to the transaction,more individual or family-oriented,and respect for the autonomy of both parties.However,while the commercial law respects the autonomy of both parties,it reflects more group and market standards.The market standard determines that commercial law needs to be more inclined to maintain the efficiency and order of market transactions,and pay more attention to the interests of the market as a whole,rather than considering individual interests.Unlike the civil law adjustment methods that focus on repairing damaged civil relations and compensating for personal damage,commercial interest adjustment methods emphasize the use of rules and require appropriate intervention and appropriate intervention of public power to ensure commercial transaction order and maintain overall interests.The application of commercial concepts and rules has different characteristics and value orientation from the traditional civil field.Should recognize the effectiveness of bond cross-default clauses,balance the value relationship between transaction safety and efficiency as much as possible,and maintain normal transaction order through appropriate fine-grained rule setting and necessary regulations.Cross-default clauses are generated spontaneously through practice,and the main core function is accelerated expiry.After a long period of exploration,the US case law has formed relevant restrictions on the application of accelerated expiry clauses,and determined the following rules applicable to accelerated expiry: First,accelerated expiry is subject to a clear agreement between the parties.Second,the accelerated expiry clause is conditional on fairness,and the breach of the contract that triggers the expiring expiry clause must meet substantive standards.There are certain restrictions on the penalty,that is,the application of the penalty should be of a remedy rather than punitive nature.Third,when the creditor has abstained or has other dishonest circumstances,it can be deemed that the accelerated expiry clause is invalid.Fourth,give the debtor a grace period.Fifth,the court allows the debtor to prevent the execution of the accelerated expiry clause by adopting reasonable methods acceptable to creditors such as payment of liquidated damages and provision of guarantees before the expiry of the expiry clause.The regulation and application of China 's bond cross-default clauses should be based on two aspects.One is to realize the value function of the clauses by regulating the design and construction of bond cross-default clauses.Although the bond cross-default clause is introduced as a foreign product,it is based on long-term foreign practice and is used in loan contracts and bond contracts.Based on the freedom of commercial contract and respecting the commercial nature of bond transactions,in order to protect the needs of investors and even the public interest,and based on the complexity of the cross-default clauses of bonds,it is necessary to polish the terms and restrict them.In the case where the effect of setting the model text is not very significant,the regulatory authority can explore mandatory restrictions on cross-default clauses.First of all,the requirement for a default event that triggers a cross-default clause is substantial,that is,it meets certain trigger threshold requirements.Secondly,necessary restrictions can be placed on related parties to prevent the improper expansion of the bond issuer 's liability.Finally,the grace period and the relief mechanism after triggering cross-defaults are required to be listed to prevent unnecessary panic caused by the lack of a standardized disposal process once the triggering cross-defaults clause is triggered,and at the same time solve the creditor class action dilemma.The second is to guide the follow-up processing mechanism for triggering cross-default clauses of bonds to mitigate the related risks that may be triggered by triggering cross-default clauses of bonds.In addition to pre-mandatory restrictions on the setting of cross-default clauses in advance,post-trigger disposal is also particularly critical.It is necessary to avoid the inefficient default disposal after triggering cross-default clauses of bonds to make it a new hidden risk in the bond market.It is also very important to construct the matching guarantee system corresponding to the terms.Without the cross-default clauses of the bonds guaranteed by the corresponding system,the expected function is difficult to be played.First,it is recommended to adopt the bond cross-default clause evaluation model formed in the practice of the US bond market,that is,the bond issuer commissions a professional institution to evaluate the bond cross-default clause and make it public,so as to prompt both parties to further understand the bond cross-default clause and guarantee clause The function is more effective;Secondly,the establishment of a differentiated default bond trading system and a rational channel for the disposal of batches of technical default bonds;again,improve the rating agency accountability mechanism to solve the problems related to information asymmetry.Through the peripheral construction of the corresponding supporting system,the function of bond cross-default clauses can be maximized and guaranteed.