An attempt by an issuer to introduce protective language into bond documents on a taxable municipal hospital deal backfired and was thwarted by bondholders, Adam Cohen, the founder of Covenant Review, told a meeting of the Fixed Income Analysts Society on Thursday night.
Lawyers for a Children's Hospital Corp. $350 million taxable muni deal in Massachusetts had placed a phrase in bond covenant documents that said there would be no premium paid in the event of a default, Cohen told the audience meeting at the Cornell Club in New York.
Potential buyers of the deal "got so angry about it they said 'now we're only going to buy the bonds if you put in the opposite language,' " he said, adding that investors forced language into the offering documents that makes it clear that investors are due a premium in the event of a default -- and specifies they are due an amount "equal to the make-whole redemption price."
The language now expressly says that "in any default – bankruptcy, insolvency, bond covenant – it doesn't even matter what the reason, you get the whole make-whole price," said Cohen who is a corporate finance attorney. "That's fantastic."
Cohen of