Solutions to agency problem
The bondholders might receive the following procedures to protect themselves from the process of the shareholders that might dilute the value of the bond. These processes involve as:
1. Call capability Provisions
These provisions will give such the borrower will have to pay the debt before the ending of the maturity duration if there is breach of conditions and terms of the bond covenant.
2. Transfer of Asset
The bondholder or lender may insist to have a representative in the board of directors of the borrower who such will oversee the consumption of the debt capital borrowed and safeguard the interests of the bondholder or lender.
4. Refuse to lend
Whereas the borrowing company has been included in un-ethical practices associated along with the debt capital borrowed, such the lender may withhold the debt capital thus the borrowing firm may not get together its investments requires without adequate capital.
The different way to this is to charge high interest as a deterrent mechanism on the borrower.
On breach of bond agreements, the lender might have the right to change the bonds into ordinary shares.