From FT Alphaville:
Sloppy covenants could lead to problems
Mitu Gulati is a professor of law at the University of Virginia.
Well, that’s that. Russia did not make its April 4, 2022 dollar bond payments. It tried, but the accounts from which it tried to make the payments have been frozen by the US Treasury Department on account of the matter of Russia having invaded Ukraine. Whoops. In a week, the 30-day grace period for Russia to cure the default will be over. Ordinarily, one would predict a certain default to be in the offing. Vladimir Putin’s bond, however, might have a few landmines buried in them. Focusing on the dollar bond that came due on April 4, 2022, here are four of them.
1. Unilateral Modification
Bond contracts are generally loaded with contract provisions that protect bondholders against dastardly things that a distressed debtor might be inclined to do. So, a provision that one would decidedly NOT expect to see is one that gives the debtor and its flunkies the right to unilaterally modify provisions that would otherwise protect creditors. Under the title “Modifications and Waiver”, it says:
The parties to the Fiscal Agency Agreement may agree, without the consent of the Bondholders, to any modification of any provision of the Fiscal Agency Agreement, which is of a formal, minor or technical nature or is made to correct a manifest error....
....MUCH MORE
