Lecture 3 Bond Docs Flashcards

0
Q

Negative covenants

A

Will not enter into transaction with affiliates, etc (things you will not do)

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1
Q

Affirmative Covenants

A
  • banks will not give covenants
  • negative pledge (ie lender will not offer securities without offering to original holders. Can partly carve out (eg up to 15% can be offered etc)
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2
Q

Merger consolidation clause

A
  • protect lender from borrower merging with company with an inferior credit profile or from a jurisdiction with poor legal protections for the lender.
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3
Q

Events of default clause

A

Will be covered in the doc and will cover payment of interest and principal, financial covenants and other events

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4
Q

Financial covenants

A
  • interest coverage ratio
  • gearing
  • loan to value ratio
  • leverage
    banks were more lenient pre GFC
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5
Q

Sale of Assets covenants

A
  • cannot use sale of proceeds to pay dividend. Shifting assets from debt to equity holder
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