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H
igh yield bond covenants are the creation of a
routinely peculiar process: One of a select group of
law firms serves up a standard form “Description of Notes” to the issuer. The issuer bangs the table
for “flexibility” and its counsel sends back a heavy markup.
The underwriter’s counsel resists the most liberal parts of the markup until the issuer and investment bankers
reach a vague understanding of what is “market” for comparable bond issues.
Investors often do not have the time or expertise
to analyze the covenants for each of the many offerings they review. As time passes, the indenture
gathers dust until the credit begins to weaken or the fateful day when the issuer announces a change
of control, special dividend or other unusual event.
When investors call counsel for the issuer or underwriter—or even an unrelated law firm—they are
usually turned away due to conflicts of interests or because answering discrete indenture questions does
not meet their firm’s business model.
Now, sophisticated investors have a choice in experienced counsel focused on answering your covenant
concerns. I welcome your inquiries regarding proposed bond offerings, issues trading in the secondary
market, and the impact of indenture amendments.
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