Representative of the Bondholders' Mass – Make Whole Calculation Agent, what conflict of interest?

Bondholder Representative – Make Whole Calculation Agent, what conflict of interest?

Is there a conflict of interest in acting simultaneously as a Make Whole calculation agent and a bondholder representative for the same issuance?

To address this question, we must first consider the potential for a conflict of interest. In this scenario, it becomes essential to scrutinize the entire documentation of private or bank financing, in which the agent assumes all roles: payment, calculation, security, administrative agent, bondholder representative, etc.

But what about public bond issuances?

In the case of calculating the make-whole clause, this theoretically indicates an early redemption of the issuance and thus the dissolution of the bondholder group. In this context, it is challenging to argue that a conflict of interest exists with a legal entity that no longer exists.

What if the calculation were to be made in a partial redemption framework and there was an error?

It would then be conceivable to consider a dispute of the bondholder group against the issuer and the calculation agent. However, the partial redemption of a bond series is an extremely rare event, and errors in the calculation of a make-whole, which is validated, verified, and compared before being formalized, are also exceedingly rare. Therefore, the likelihood of a situation encompassing both aforementioned facts occurring is close to zero.

Two conclusions emerge from this analysis

1/ The issuer and its advisors should primarily focus on the quality of the participants: bondholder representative or calculation agent, to ensure that they will fulfill their roles when the time comes (the resignation of bondholder representatives during the recent restructuring of the Casino group has further demonstrated this) rather than imagining situations with virtually no probability that are purely theoretical.

2/ Instead of seeking hypothetical conflicts, it is preferable to recognize that assuming both responsibilities not only establishes a solid foundation but also maintains constructive communication with all parties involved. By managing this dual role, the agent ensures the preservation of the collective interests of the bondholders while minimizing potential risks of misunderstandings or conflicts. This proactive approach thus reinforces the agent's commitment to transparency, trust, and the sustainability of its collaborations among stakeholders.