We Mean What We Don't Say: The Archer Daniels Midland Case, Reputation, and the Curiosity of Refunding Clauses

Wang, S. Albert, Yale Journal on Regulation

The Archer Daniels Midland litigation and its aftermath highlighted the oddity of the continued use of the refunding clause in bond covenants, despite its legal ineffectiveness. This Note suggests three reasons for why the refunding clause might have retained value despite judicial curtailment of its legal reach: investor ignorance of the legal details of bond indentures, discounted but residual legal value, and extra-judicial reputation-based enforcement. The reputation-based hypothesis construes the refunding clause as a division of benefits between issuers and investors, where issuers retain the right to call bonds for "legitimate" business purposes, but investors are promised all …

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Publication information: Article title: We Mean What We Don't Say: The Archer Daniels Midland Case, Reputation, and the Curiosity of Refunding Clauses. Contributors: Wang, S. Albert - Author. Journal title: Yale Journal on Regulation. Volume: 23. Issue: 1 Publication date: Winter 2006. Page number: 121+. © Yale University School of Law Winter 2009. Provided by ProQuest LLC. All Rights Reserved.

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