The Types of Covenants in Bond Issuance Programs of Mining Industry Companies

Królikowska Elżbieta () and Sierpińska-Sawicz Agata ()
Additional contact information
Królikowska Elżbieta: Dr, Jastrzębska Spółka Węglowa, Jastrzębie-Zdrój
Sierpińska-Sawicz Agata: Dr, Uniwersytet Ekonomiczny, Poznań

Gospodarka Surowcami Mineralnymi / Mineral Resources Management, 2016, vol. 32, issue 2, 135-152

Abstract: In the article, the authors attempt to quantify the covenants, which are the special terms of the bond issuance programs, reducing a risk of the bondholders. The type and the character of the covenants depend on several circumstances like: financial situation of a bond issuer, industry risk, country risk or economic situation. The most common used covenants refer to several limitations like payments, taking out the loans, issuance of the next series of bonds, credit events, dividend payouts. The separate group of covenants are those which constitute a limitation of an assets disposal, a range of the investments, the mergers and acquisitions or those that refer to maintaining the rating. The belief that the bond issuance is the easiest way of rising the funds in comparison to a bank loan is not fully supported. The covenants have significant influence on a performance of a bond issuer. Some of the covenants cause losing a flexibility of a company and restrict a possibility of making the effective decisions which can lead to rising the risk of a bankruptcy. The limitations included in a bond issuance program could be particularly inconvenient for a company’s development and may demand the assets restructuring which range is hard to predict while a bond agreement is being signed. In terms of using the funds gained from bond issuance for an operating performance, the ability to go in a line with the covenants is less likely while the same funds will be spent on the investments which will generate the profits and amortisation in the future. It allows to gain the appropriate level of EBITDA as well as makes a bond repurchase possible. It is worth to add that the investors and the stock brokers who are responsible for a bond issuance program preparation have an influence on the quantity and quality of the covenants. They define the standard used covenants in the bond agreements. The knowledge and the negotiation skills of the managers have significant influence on the adjusting the bond contracts to the company and branch risk.

Date: 2016
References: Add references at CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1515/gospo-2016-0014 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:vrs:gosmin:v:32:y:2016:i:2:p:135-152:n:4

DOI: 10.1515/gospo-2016-0014

Access Statistics for this article

Gospodarka Surowcami Mineralnymi / Mineral Resources Management is currently edited by Ney Roman

More articles in Gospodarka Surowcami Mineralnymi / Mineral Resources Management from Sciendo
Bibliographic data for series maintained by Peter Golla ().