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An Institutional Innovation To Reduce The Agency Costs Of Public Corporate Bonds

  • Yakov Amihud
  • Kenneth Garbade
  • Marcel Kahan
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    This paper proposes an institutional innovation in the structure of public bonds that is intended to provide some of the advantages of private loans- active monitoring, tight covenants, and ease of reorganization-while retaining the benefits of liquidity and ease of diversification provided by publicly traded securities. The authors propose that a publicly registered corporate bond provide for a "supertrustee" who will act on behalf of bondholders. The supertrustee will be charged with responsibility to monitor the compliance of the borrower with the terms of the bond covenants and given exclusive authority to negotiate amendments to the covenants and decide what action to take in the event of a breach of a covenant. 2000 Morgan Stanley.

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    Article provided by Morgan Stanley in its journal Journal of Applied Corporate Finance.

    Volume (Year): 13 (2000)
    Issue (Month): 1 ()
    Pages: 114-121

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    Handle: RePEc:bla:jacrfn:v:13:y:2000:i:1:p:114-121
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