A study of covenants : the developing Norwegian corporate bond market

Abstract

We perform an initial study on the field of covenants and its use in corporate bonds in Norway. Based on the respective loan agreements, we construct a database that includes key bond and issuer characteristics and the covenants, containing close to all the issues in the period between 01/01/1998 and 03/31/2008. We find that the use of covenants has increased significantly, and the market has obtained experience and become more professional within several dimensions. Furthermore, we find that several bond characteristics influence the use of covenants. However, our study does not find concluding evidence of a relationship between covenants and firm specific variables.