Investors’ row looks set to run and run
European bond investors are on the attack. They have not so far manned the barricades but they are distinctly edgy, maintaining that they are suffering from mushroom syndrome: people keep them in the dark and feed them bullshit. So they are fighting back. Their main bone of contention is that a company can be restructured with a negative impact on existing bonds and with little in the way of financial disclosure.
A group of leading institutions has called for reforms, including
minimum covenants that would allow investors to sell bonds back to the
issuer if there was a change in control, a disposal of more than 20% of
the assets or a change in the debt ranking. Other demands are that
issuers obtain at least two credit ratings, regularly issue financial
information, make redemption less onerous and only use underwriters
with a track record for providing secondary market liquidity.
As the investors made their stand last month, Dutch fund manager Amstel
Capital Management was squaring up to troubled supermarkets group Ahold
and steelmaker Corus about lack of disclosure over their bonds.
But the issuers look unlikely to roll over. “We said we don’t have a
legal obligation to disclose and we have no intention of publishing the
information,” was Ahold’s Dutch supermarket operation Albert Heijn’s
response to a request for further information.
That’s fine for now – but the bondholders are not going away. Like
equity owners, they are set to become more aggressive in asserting
their rights. Investment banks and issuers may as well take on board
what they want now.
Brian Caplen
