Evidence of covenants in Brazilian debenture issues

Abstract

The covenants aim to reduce the risk related to uncertainty regarding the future capacity to pay the debt and to guarantee the debenture holder's rights. Thus, this paper aims to identify the most common clauses in the issuance of debentures and, in parallel, to show how the covenants may be related to the sectors of the debenture issuing companies and their level of corporate governance and the volume of the issue. For this purpose, descriptive statistical techniques and cross-frequency tables were used. The data were collected from the reference forms of the companies that issued debentures between 2010 and 2018. 220 securities were identified for the period under analysis and it is clear that there is almost no difference between the types of guarantees adopted for different fundraising volumes. ; that companies in the transport and electric power sector stand out as those that most adopt payment covenants in their emissions and that companies in the new market are those that have the most restrictive payment-related clauses. The covenants of Net Debt on EBITDA and Debt on EBITDA, EBITDA on Financial Expenses are the most present. These added up represent 45% of the restrictive clauses present in the issues. The most prevalent covenant category is that of payments. This allows us to infer that this category can be configured as the most relevant in terms of informational asymmetry and performance of the organization to honor the commitment with the debenture holders. This allows us to infer that the issuing companies intend to inform the market that the conditions of compliance with the financial obligations are the most appropriate to indicate their ability to honor the debenture holder with commitment.