Bonds covenants

Leland, H.E., 1994. Corporate debt value, bond covenants, and optimal capital structure. J. Financ. 49 (4), 1213-1252. 

Several members of the Lunar Society were major contributors, the Wedgwoods more prominent than the Watts in this regard. See T. H. Levere, Dr. Thomas Beddoes and the Establishment of his Pneumatic Institution. A Tale of Three Presidents , Notes and Records of the Royal Society of London, 32 (1977), pp. 41-9. The most extraordinary funding, a bond for 10,000 pounds, came from James Keir in Bond for performance of Covenant. Dr Beddoes to Jas. Keir Wm. Reynolds Esqrs., 27 August 1793, emended to 16 April 1794, National Archives (Kew), MSC 104/41. Keir was also a staunch phlo-gistonist. 

The ceremony of transmission described in the Taiqing sources is similar to rites documented in early Daoist texts. The adept must swear a covenant (meng) and establish a bond (yue, a word that in other contexts denotes a legal contract) with his master, and provide tokens [xin) that prove his commitment to receiving the texts and instructions and to keeping them secret. At the end of the rite, he and his master ratify their reciprocal obligation by smearing their mouths with blood, which is sometimes replaced by cinnabar (a further example of the symbolic association between the color red and the notions of sincerity and loyalty that we have discussed in the previous chapter). ... 

After a bond is issued bondholders can do little to counter management s activities contrary to their interests. One possibility to commit management to bondholders interests is to include covenants in the bonds indentures. A covenant may restrain certain actions (e.g., forbid to sell part of the assets ). Covenants intend to protect investors from objectionable actions, e.g., a debt financed takeover of another company. 

The debate around bond prospectus covenant packages, in terms of the relatively poor protection they offer bondholders, has been one of the hardy perennials of the Eurobond market. The primary reason for the lack of strong covenants is the extremely diffuse investor base, which makes it difficult for bondholders to form a consensus on what covenants are truly desirable. 

The legal obligations of the issner under the terms of a bond are created pursuant to the signature by the issuer of a trust deed or a deed of covenant. 

If the issuer were to grant the rights (e.g., covenants, charges, pledges) underlying such bonds directly to individual bondholders at the inception of the deal, the bonds might not be easily sold on the secondary market without modification of the original issuance documentation. Moreover, modification of the issuance documentation would be impractical in such circumstances because, in addition to cost and time considerations, it would be difficult to verify the identities of the parties to the secondary sale and many investors would not want to reveal their identity to the issuer. 

Placing a trustee between the issuer and the bondholders at the inception of the deal eliminates the above problem because the trustee assumes legal ownership of the rights underlying the bonds (e.g., covenants, charges, and pledges) for the benefit of present and future bondholders for the duration of the issuance. Thus, bondholders, as the beneficial owners of the rights attached to the bond, which are held... 

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