Retail investors as stumbling blocks in bond restructuring: Evidence from bondholder meetings

Using a detailed database of meeting agendas, participation rates, and voting outcomes of bondholder meetings collected from bundesanzeiger.de, the official press releases of issuers, and the documents provided by Schutzgemeinschaft der Kapitalanleger as well as Deutsche Investoren Union, we analyze the determinants for successful bond restructurings under the German Bond Act. The law regulates bond restructuring in Germany and contains collective action clauses that intend to make the amendment of bond terms easy compared to the U.S. where these clauses are not common. We find that bond restructuring is relatively convenient under the German Bond Act, as the majority of restructuring attempts are successful. Applying ordinary least squares regression as well as a probit regression model, we explicitly focus on how bond holdings of retail investors impact bond restructuring and find that participation rates, the probability to constitute quorums in bondholder meetings, and most importantly, the probability to successfully amend bond terms, are negatively related to the degree of bond holdings of retail investors. Given that German corporate bond markets just recently opened up for retail investors through the introduction of mini-bond segments, bond issuers need to be aware that targeting retail investors reduces the ability to amend bond terms, which can be particularly relevant in times when issuers are faced with financial difficulties.