Increasing the efficiency of bond covenants: a proposal for the Italian market

In Italy the use of bond covenants is restrained 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 loans 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 could help to define debt contract terms to increase the efficiency of covenants market, but Italian corporate bonds law does not allow to adopt this model. New regulation on financial instruments with administrative rights offers more opportunities in order to define a solution coherent with the debt agreements and owners' rights that characterizes bond covenants.