Issue 1, 2015

Belyaev R. V. Covenants as Risk Management Tool in Credit Relations.

The efficient use of covenants as risk management tool in credit relations demands introduction of more advanced covenants choice and monitoring approaches into modern banking practice. These approaches shall be based on deeper study and systematization of scientific research into mechanisms and specifics of use of covenants. The article deals with comparison of various approaches to classification of covenants and systematization of research, justifying the use of covenants as obligations of the borrower aimed at credit risk mitigation. Specifics of the approach of banks and consulting companies towards the covenants interpretation is being discussed. Example of covenants wording from the model loan syndication agreement is being introduced and types of covenants identified in line with the discussed classifications of covenants. Keywords: covenants, types of covenants, strictness of covenants, credit risks, incomplete contracts, information asymmetry, opportunistic behavior.

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