@article {Bhanot57, author = {Karan Bhanot}, title = {Pricing Corporate Bonds with Rating-Based Covenants}, volume = {12}, number = {4}, pages = {57--64}, year = {2003}, doi = {10.3905/jfi.2003.319339}, publisher = {Institutional Investor Journals Umbrella}, abstract = {A corporate bond indenture often includes covenants that allow bondholders to take specific actions (e.g., force prepayment or reorganization) if certain specific conditions are violated. A typical covenant is triggered by a downgrade in credit rating. This article provides a simple framework for the valuation of a corporate bond with a rating-based covenant. Basic assumptions that are consistent with empirical evidence are that a downgrade in credit rating is accompanied by more volatility in assets, and that corporate reorganization after a rating change results in a change in payments to equityholders and other securityholders. The model may be used to compare risky bonds with covenants and bonds without convenants.}, issn = {1059-8596}, URL = {https://jfi.pm-research.com/content/12/4/57}, eprint = {https://jfi.pm-research.com/content/12/4/57.full.pdf}, journal = {The Journal of Fixed Income} }