Some covenants contain a provision requiring investors to keep confidential any information the issuer delivers under the reports covenant. In this ELFA Covenant Tip, we explain how this provision creates an even more stringent requirement than what is usually present in a private loan, and raises the risk that investors become restricted on the name.
A typical reporting covenant requires that the issuer must furnish reports required under the reporting covenant to the trustee, and may or may not refer to posting information on an issuer’s website.
But in some deals, not only issuers are permitted to keep information behind a password protected website, they also require investors to undertake to keep the information confidential (which means they would not be able to share it with any third party, including certain advisors).
This provision constrains liquidity and the ability of third parties to publish research on these issuers. Worse still, investors may have to consider whether accepting such a provision could restrict their ability to trade the bonds given, by definition, they will hold confidential information of the issuer.
To find it, look in the reports covenant for the words “keep such provided information confidential”, “confidentiality acknowledgement”, or “treat all such reports (and the information contained therein), or information as Confidential”.