Increasing the Efficiency of Bond Covenants : A Proposal for the Italian Market

In Italy the adoption of convenants, and, more in detail, the use of bond covenants, is constrained by the predominance of SMEs, the significant role of relationship banking, the high costs related to public placements, the lack of investors‘ financial culture, the low amount of capital normally requested by each firm and the lack of liquidity of the secondary market. On the basis of US experience, the creation of a trustee is able to define debt contract terms that could increase the efficiency of convenants market but Italian corporate bonds law does not allow to adopt this model. Law on financial instruments with administrative rights offers more opportunities in order to define a solution coherent with the debt agreements and owners' rights that characterized covenants