Bienz, Carsten; Faure-Grimaud, Antoine; Fluck, Zsuzsanna - Financial Markets Group - 2011
We analyse one frequent clause in bonds, covenant defeasance. Covenant defeasance allows the issuer to remove the bond's covenants by placing the remaining payments with a trustee in escrow to be paid out on schedule. We provide theoretical justification for this option and show empirically that...