How a ‘Keepwell’ Clause Protects China Bonds (or Not)

Bankruptcy and debt restructuring in China is a murky process, especially for international investors. So-called keepwell provisions are one way bondholders try to protect themselves in case of default. The problem is the clause essentially amounts to a “gentlemen’s agreement” and has never been tested in court. That could change, however, with a case involving the troubled business arm of a top Chinese university.