EMTA Special Presentations "Corporate Bond Covenants" and "Corporate Bond Covenants: Brazil"
As corporate issues continue to dominate Emerging Market debt issuance, EMTA has initiated a series of events specific to the EM corporate bond world. To date, EMTA has hosted annual Corporate Bond Forums in New York and London, as well as presentations by ratings agency representatives to discuss their ratings methodologies, including how corporates can pierce the sovereign ceiling.
EMTA hosted seminars in NYC on March 7 and May 16, which focused specifically on the covenants, defaults and creditor remedies included in Emerging Markets corporate bond documents.
In the March 7 seminar, Timothy B. DeSieno, a partner at Bingham McCutchen LLP, Nate Van Duzer, Director of Restructuring & Legal Affairs at Fidelity Investments and Tony Lopez, a partner at Clifford Chance, discussed the text and intent of these provisions, both under New York and English law. Also explored were the provisions’ practical utility in today’s EM marketplace, potential alternative deal structures that the market may wish to consider, and comparisons to sovereign bonds. In their presentations, the three generally shared pessimism that bond covenants could be relied upon to protect investors, due to enforcement difficulties.
In the May 16 seminar, Andre Sotnik (Banco Itau), as the Moderator, Bruno Balduccini (Pinheiro Neto Advogados), Antonio Felix de Araujo Cintra (TozziniFreire Advogados) and Nei Schilling Zelmanovits (Machado, Meyer, Sendacz e Opice Advogados) discussed the covenants, defaults and creditor remedies included in Emerging Markets corporate bond documents as they relate to investment in Brazil. In their presentation, the four generally agreed with the March panel that corporate bond covenants cannot be relied upon to protect investor interests because they may be difficult to enforce (regardless of the governing law provision), and that strong relationships with issuers are key to a successful restructuring. Without the covenants as a bargaining chip, the leverage balance may be tipped in favor of the local debtor.
For more information, please contact Aviva Werner at awerner@emta.org.