Restrictive covenants in Xanadu

Legal scholarship is naturally inclined towards explanations and justifications of contemporary law. In the case of restrictive covenants and building schemes this has led to a distorted perception of the historical record, as revealed in recorded case reports dating from the nineteenth century. It is argued that the restrictive covenant had its historical genesis not in a response to industrialisation and mass urbanisation, but in the developments of resort towns in the eighteenth and early nineteenth centuries, as a response to the needs of land developers. Furthermore, it is argued that a better historical understanding of these origins illuminates contemporary problems concerned with the adaptability of law and the potential roles of law in development

How Laws Affect Contracts: Evidence from Yankee Bond Covenants

We examine how country-level legal and institutional differences in creditor and shareholder rights shape the use of bond covenants. Using comprehensive debt covenant information for a sample of Yankee bonds issued by firms from more than 50 countries, we find that bond contracts for firms incorporated in countries with stronger creditor rights use fewer restrictive covenants. This finding suggests that creditor rights laws substitute for debt covenants in reducing the agency cost of debt. On the other hand, bond contracts for firms incorporated in legal regimes with stronger shareholder rights include more covenants, suggesting that greater shareholder rights may actually increase the shareholder-bondholder agency conflict. These results are robust to alternative measures of creditor rights and shareholder rights. We also document that stronger firm-level corporate governance is positively related to the use of restrictive covenants even after controlling for country institutions.Covenants, contracts, creditor rights, shareholder rights, corporate governance

Solar Rights and Restrictive Covenants: A Microeconomic Analysis

This comment addresses the enforceability of restrictive covenants in relation to solar energy rights. Articulating the framework for development of solar energy, this comment works through an economic model formulated by Professors Ellickson, Coase, Calabresi, and Malemed. Looking for an efficient allocation of resources, this comment proposes a modernization of common law property principles to ensure the proper growth of solar energy

Restrictive covenants indemnity insurance: Safety net or racket?

A review of the liability of freehold property owners for breaches of restrictive covenants committed by their predecessor

Are Bond Covenants Priced?

In this paper we ask the empirical question are bond covenants priced? Consistent with the Costly Contracting Hypothesis (CCH) developed by Smith and Warner (1979), we find that they are. We document a negative relation between the promised yield on corporate debt issues and the presence of covenants. We also find that loans made to high-growth firms are more likely to include restrictive covenants than loans made to low-growth firms. We show that the inclusion of a covenant varies systematically with macroeconomic factors as well as with supply-side factors, especially the identity of the lending institution. Finally, we show that consistent with the CCH, firms that elect to issue private rather than public debt are smaller, have greater growth opportunities, less long term debt, fewer tangible assets, and include more covenants in their debt agreements. An important byproduct of our analysis is to demonstrate empirically that the decision to include a covenant and the corresponding promised yield are determined simultaneously. Consequently, statistical models that ignore this simultaneity in analyzing the effects of covenants, like single-equation probit models, are misspecified and generate unreliable statisticsAgency Costs, Costly Contracting, Debt Covenants

Structure and determinants of financial covenants in leveraged buyouts - evidence from an economy with strong creditor rights

We apply control rights theory to explain the structure and determinants of financial covenants in private equity backed leveraged buyouts. We analyze 130 German transactions from 2000 to 2008, covering about 40 percent of the LBO market during this period. We consider Germany to be a superior institutional context as creditors have substantial rights in case of borrower default and contracts are negotiated more rigorously. Regarding structure we find that the financial covenant structure, in terms of number and types, is standardized and appears to be much more conservative than in the United States. Additionally, our results suggest that financial covenants are designed in a hierarchical manner, with the Debt to EBITDA covenant being the first to breach in early years. Regarding determinants we are the first, to our knowledge, to apply a direct measure of financial covenant restrictiveness, which is the real negotiated item between lead arrangers and sponsors. Our results show that financial covenant restrictiveness is significantly negatively related to the size of the private equity group, which serves as a proxy for reputation. Further we show that target-related factors, like growth and profitability, have a strong impact on financial covenant restrictiveness. With regard to transaction-based factors, increasing financial risk leads to more restrictive financial covenants. --financial covenants,leveraged buyouts,financing structure,control rights

Attorneys Must Not Enter Partnership Agreements Prohibiting Themselves from Representing Former Clients Upon Termination of Partnership. Dwyer v. Jung, 133 N.J. Super. 343, 336 A.2d 498 (Ch. 1975), appeal docketed, No. 3378-74, App. Div., June 18, 1975.

Three attorneys entered into a partnership agreement for the practice of law. Their agreement included a provision that assigned the partnership\u27s insurance carrier clients to individual partners upon the termination of the partnership and restricted the partners from doing business with a client designated as that of another partner for a period of five years. Of these insurance carrier clients, 154 were assigned to the defendant while five were allotted to the plaintiffs. After the partnership was dissolved, the plaintiffs sought a judicial accounting. The defendant counterclaimed, contending that the plaintiffs violated the restrictive covenant of the original partnership agreement by attempting to do business with clients designated as his. Plaintiffs denied the charge and argued that the covenant apportioning clients to individual partners had the effect of prohibiting the other partners from dealing with those clients and was therefore void as against public policy. The plaintiffs also contended that they had entered into the agreement at the insistence of the defendant, even though all parties regarded the provision as unenforceable. The Superior Court of New Jersey, Chancery Division, held that the covenant in the partnership agreement restricted the partnership\u27s clients in their choice of counsel and was thus void for public policy reasons. The court refused to apply the standards usually used in evaluating restrictive covenants

Korematsu and Beyond: Japanese Americans and the Origins of Strict Scrutiny

The authors examine the role that the Japanese American Citizens League played in the development of the strict scrutiny doctrine partly responsible for the ruling in Brown v. Board of Education. The plight of Japanese Americans during their WWII internment gave them experience in implementing this doctrine, which they passed on to the NAACP