A covenant for change

A sharp rise in LBO risk - thanks mainly to private equity funds' groaning warchests - has forced credit investors to look to protect themselves by pressurising issuers to include more robust covenant language in their offerings. So does this mean that bondholders are finally winning the battle for improved bond terms? Laurence Neville isn't so sure

Investment-grade bondholders have long been poorly protected against event risk. Efforts by the Group of 26 sterling and euro investors to improve covenant protection, first revealed in October 2003 by Credit, achieved little in the way of improvements.

But the leveraged buyout of Danish cleaning services company ISS in April 2005 changed the terms of the debate and underscored the dangers of having no protection in the event of company takeovers. The lack of a change-of-control clause in bond