MODEL COVENANT

Model Corporate Bond Covenants

The CBIA is dedicated to promoting best practices in the Canadian bond market. The corporate bond market is a key area where the principles of fairness and trust are necessary to encourage efficient market functioning for both borrowers and lenders.

The investment grade corporate credit market is overwhelmingly comprised of senior unsecured debt obligations that provide a wide range of freedom to borrowers to manage their affairs with minimal oversight from lenders. With this freedom comes a responsibility to behave in a manner that respects the interests of the lenders who provide this capital.

The parameters of those responsibilities are defined by a few key covenants contained in debt documentation and that are well understood by market participants. Over time these covenants have evolved and have often been weakened so that their intent has been undermined.

The CBIA has developed a series of Model Covenants with language that we believe should be present in most, if not all, senior unsecured corporate debt offerings. These covenants provide issuers with ample room to operate and pursue strategic goals, while protecting the interests of lenders against willful changes that impair the ability of a borrower to repay its obligations.

The following list of model covenants are discussed in our Model Covenant Discussion Paper :

-             Negative Pledge

-             Mergers and Asset Sales

-             Change of Control

-             Coupon Step-up

-             Acceleration of Maturity

-             Consent Fee Practices