Tightness of Financial Covenants Embedded in Corporate Bonds Issued by Real Estate Companies in Poland
Tightness of Financial Covenants Embedded in Corporate Bonds Issued by Real Estate Companies in Poland

Summary/Abstract: Purpose - Analysis of the debt potential of real estate companies and answering the question how restrictive the covenants in question are and which factors influence their restrictiveness. Design/methodology/approach - Verification of the correlation between Headroom Ratio and variables describing the issuer's financial situation, type of activity and number of covenants. The study covered also the determination of types of issuers that have the highest average and median of Headroom Ratio as well as in relation to companies with the same covenants it was checked the association between the threshold values and the financial performance. Finally, there was carried out the simulation of usage of ratios typical for corporate financing as covenants and confronting the Headroom Ratios with ones resulting from the currently binding covenants. Findings - Headroom for the analysed bond issue programmes is very high. The Headroom Ratio is neither statistically correlated with the financial performance of issuer nor type of activity. Research limitations - Bond issuers under review do not have external ratings, which made it impossible to investigate the relationship between Headroom Ratio and rating Research implications The findings are particularly important for the development of the residential and commercial real estate market. The conclusions of the research can be used in the process of structuring the terms and conditions of corporate bond issues. They are also important and new information about leverage potential and risk monitoring capabilities.

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