According to the market, there were 37 in the corporate bond market, and 19 and three in the debt financing instruments market and the corporate debt markets, respectively. In 2018, 43 first-time defaulters were added, setting the biggest high since 2014.
Model Clauses 2019 provides for six categories of investor protection clauses including cross-protection clauses, prior commitment clauses, prior binding clauses, change of control clauses, debt repayment guarantee clauses, and asset collateral clauses. Compared with Model Clauses 2016, the main changes in Model Clauses 2019 include the following:
2. The triggering of four categories of the clauses are optimized, including further improvement of the types of debts stipulated in the cross-protection clause, enrichment of 20 financial indicators including the proportion of restricted assets, expansion of the three types of prior-constrained matters such as restricting major investment in others, and optimization of the triggering of the change of control clause;
Significance of the new model clauses. The introduction of Model Clauses 2019 released a positive signal from the National Association of Financial Market Institutional Investors to protect investors. If the corresponding investor protection clause can be added to the issuance documents of the debt financing instruments, the issuer’s operation, finance, investment and financing, etc., would be further regulated, and investors would be given multi-dimensional reinforced remedial measures to achieve more comprehensive investor protection.
In practice, there are no detailed explanation and guidance on the setting and implementation of specific investor protection clauses. When formulating the issuance documents of debt financing instruments, potential investors have not yet been determined, and it is not possible for investors to participate in the discussion and negotiation of investor protection clauses. At the time of issuance, however, the contents of the issuance documents of debt financing instruments should have been determined, and there is not much room for adjustment and modification. Investors often have to accept the documents passively.
In the context of establishment of "no implicit guarantee" and increasing default issuers in the fixed-income market, if investors pay more attention to, and actively participate and promote the design and setting of, investor protection clauses in the issuance documents of debt financing instruments, which are related to their rights and interest, include the asset pool in the repayment of debts, or distinguish the debt financing instruments with property security in terms of subscription volatility and cost acceptance, they can promote their debt financing instruments covered by asset pool or property security in terms of repayment, thereby enhancing the protection of their rights and interests.
Only in this way, however, can the issuer's corporate governance capability be promoted, and the investor protection clauses be implemented and become an effective measure for risk warning and compensation.
