Speed of Issuance,Lender Specialization,and the Rise of the 144A Debt Market

Using a large sample of convertible and straight debt issues in the public, 144A, and bank loan markets from 1991 to 2004, we find that the 144A market has risen largely at the expense of the nonshelf public market, the overwhelming majority of the 144A issues are subsequently registered, and straight debt issuers with the highest credit quality and transparency tend to use the shelf public market. Our findings suggest that firms’ preference for speed of issuance drives the growth of the 144A market, and banks and qualified institutional buyers have advantages over public lenders in handling credit risk and information asymmetry.     

Towards a Comprehensive Accounting for Convertible Debt

Although convertible debt is an old and quite well-used form of finance, its accounting treatment has been almost ignored by those who set standards in the United Kingdom. The recent Technical Release TR 677 observed that there is a problem with convertible debt. The problem is that, after it has been issued by a company, the obligations of the company to third parties may change through time. This paper suggests that one approach to the problem is to follow a finance model of convertible debt, and to allow the accounting to develop from this. Accordingly, convertible debt may be considered on the basis of either equivalent straight debt or equivalent equity. The paper concludes with the suggestion that the accounting for convertible debt could be on the mixed basis or either the debt or the equity, but that this would be determined by the condition of the convertible debt at the date of the accounts.     

Convertible Debt: Corporate Call Policy and Voluntary Conversion

This paper examines why, in contrast to the predictions of finance theory, firms do not call convertible debt when the conversion price exceeds the call price. The empirical results suggest that the principal reason is because some firms enjoy an advantage of paying less in after-tax interest than they would pay in dividends were the bond converted. This cash flow incentive is the inverse of an investor's incentive to convert voluntarily if the converted dividends are greater than the bond's coupon. Because of taxation, however, the decisions by investors and firms are not symmetric, and there exist bonds which the firm may not call and an investor will not convert. The results also find that voluntary conversion is significantly related to both the conversion price and the differential between the coupon and the dividends on the converted stock.     

Why Do European Firms Issue Convertible Debt?

We survey European managers to gain some insights into motivations of convertible issuance. Our analysis shows that a majority of firms issue convertibles as ‘delayed equity’ and as ‘debt sweetener’. Managers also use convertibles to avoid short‐term equity dilution and to signal firm's future growth opportunities. We document a large cross‐sectional variation across firms in rationales for issuing convertibles and find mixed support for most theoretical models. Our evidence suggests that the popularity of convertibles is driven primarily by their versatility in adjusting their design to fit the financing needs of individual firms, and by their increased demand among institutional investors.     

Debt Issuance in the Face of Tax Loss Carryforwards

We examine the market impact of issuances of public and private debt by firms with sizeable tax loss carryforwards (TLCFs). Public issuances are met with a significantly negative stock price reaction, while private placements are associated with a positive marginally significant stock price reaction. After controlling for asymmetric information proxies, the stock price reaction to the debt issuance is more negative, the larger the TLCF. The evidence suggests that debt financing is suboptimal when issuers have large TLCFs, which in turn, supports the relevance of taxes for debt usage.     

Corporate Debt Issuance and the Historical Level of Interest Rates

Using a sample that comprises more than 14,000 new issues of corporate debt for the period 1970-2001, we examine the relation between debt issues and the level of interest rates relative to historical levels. Consistent with recent survey evidence, we find that companies issue more debt, more debt relative to investment spending, and more debt compared to equity when interest rates are low relative to historical rates. The effects continue to hold when we control for other variables that influence debt issuance and when we account for refinancing.     

运营时滞、债务协商和可转债融资企业投资决策研究

在运营时滞的背景下,将债务协商机制引入到利用股权和可转债融资的上市企业,建立动态模型分析企业的投资问题。数值分析表明：在相同的运营时滞下,如果股东谈判能力较弱（强）,相比于破产清算,债务协商会加速（推迟）投资;项目首次投资成本和股东谈判能力会同时影响运营时滞与企业投资水平之间的关系。当首次投资成本低时,随着运营时滞增加,较强（弱）的股东谈判能力会推迟（加速）投资;当首次投资成本较高时,运营时滞增加会推迟投资,但股东谈判能力越强,推迟程度越小;债务协商可以提高实物期权价值,并且实物期权价值和股东谈判能力成正比,和运营时滞成反比。     

The Valuation Effects of Private Placements of Convertible Debt

Share price reactions to announcements of 61 private placements of convertible debt securities are investigated and a significant positive average abnormal return of 1.80% is documented. This unique result contrasts with the negative average abnormal return associated with public sales of convertible debt securities. The positive effect on common shareholders' wealth appears to be related to the relative size of the private issue and unrelated to the degree to which the convertible bond is “out-of-the-money” at issuance.     

An Integrated Model of Debt Issuance, Refunding, and Maturity

We integrate previous work in this area and develop a multiperiod model that simultaneously determines bond refunding, bond issuance, maturity structure, cash holdings, and bank borrowing policies. The focus here is on providing the required debt funds in the most cost efficient fashion. A strength of the model is that it allows for time varying interest costs, transaction costs, issuance costs, and refunding costs to be firm specific. The output of the model lays out the optimal financing decisions for each time interval that minimize the total discounted cost of providing the funds that match the requisite funds. By limiting the surplus funds available, the model minimizes the management incentive to over invest and thereby reduces the agency costs. The model has economic implications for the financing decisions and the firm's default risk, growth opportunities, riskiness of cash flows, and firm size. JEL Classification: G30     

国内可转债市场浅析

不同时期可转债条款的设计存在较大差异，这种差异为可转债投资带来了不同的债券投资回报预期与转股预期，从而导致了不同时期发行的可转债的市场表现存在较大差异。     

Pre‐Issuance Hedging of Fixed‐Rate Debt

This article analyzes several corporate hedging strategies to manage interest rate risk on fixed‐rate debt prior to issuance. The authors start by considering these strategies using a highly stylized model: a binomial forward interest rate tree that, while simple in design, illustrates derivative pricing methodologies that are used in practice. Under a given rate volatility assumption, they demonstrate expected outcomes when entering a forward bond contract, a forward‐starting pay‐fixed interest swap, and a purchased option on that swap, as well as the “default” alternative of doing nothing. In principle, the decision of whether or not to hedge, as well as how to do so, depends on management's view of future interest rate volatility and degree of comfort with possible outcomes. The authors then assess the pros and cons of hedging strategies, with considerable emphasis on practical considerations. For example, while their theoretical model would allow an issuer to “lock” a specific debt issuance, in practice one can hedge only “benchmark” interest rate risk. The authors describe the use of both Treasury locks and forward‐starting swaps to address unexpected benchmark yield changes, and discuss how factors such as the time to issuance affect an issuer's choice of instrument. For instance, Treasury locks are typically used when the time to issuance is relatively short, while interest rate swaps are more common for longer times to issuance. The article also discusses circumstances in which a “do nothing” strategy may be preferable to other alternatives, as well as the disadvantages of issuing in advance. Finally, the authors describe the impact of financial accounting on different hedge strategies.     

The Determinants of Debt Maturity at Issuance: A System-Based Model

We examine the determinants of corporate debt maturity while taking into account the interdependent relation between maturity and leverage. We do this by estimating a simultaneous-equations model on debt maturity and leverage for a sample of bond-issuing firms. To compare with previous studies, we also estimate a single-equation model on debt maturity using OLS. We define debt maturity as either the maturity of bonds at issuance (incremental approach), or the percentage of a firm's total debt that matures in more than three years (balance-sheet approach). Corroborating the findings of many previous studies, our single-equation OLS results support the underinvestment hypothesis purporting that firms with greater growth opportunities have shorter-term debt. However, under the simultaneous-equations model, the negative relation between a firm's debt maturity and its growth opportunities ceases to hold. Instead, it is the leverage decision that is influenced by growth opportunities. This suggests that existing models may overestimate the effect of growth opportunities on debt maturity.     

A Re-examination of the Case for Accounting Separately for the Debt and Equity Features of Convertible Debt

The case for accounting separately for the debt and equity features of a convertible bond is based on two main assumptions: convertible debt can be decomposed into two, or more, fundamental financial instruments, and a convertible bond has the same economic substance as a bond with a detachable warrant. These assumptions are re-examined in this paper where it is shown that it is generally not possible to decompose a convertible bond into fundamental financial instruments, nor is it possible to form a package of a bond and a detachable warrant that replicates the character of the convertible bond.     

重视债市

各位CFO朋友:你们好!先介绍一下永隆银行,虽然进入中国比较早,但对很多人而言,它还是很陌生。永隆银行是在香港注册的持牌银行,具有77年悠久历史。2008年10月,永隆银行成为招商银行旗下的全资附属银行。     

我国可转债市场研究

可转债是证券市场的投资品种之一。我国的可转债市场虽然经过了近12年的发展，但仍然存在许多值得研究的问题。根据我国可转债市场的实践及其自身特点，分析我国可转债实践存在的问题，并提出自己的看法与建议。     

Call Completeness Implies Completeness in the n-period Model of a Financial Market

In this paper an arbitrage-free n-period model of a financial market with a predictable, strictly positive numéraire and g risky assets is considered. Complete financial markets are of great practical relevance and of considerable theoretical interest, because in these markets one can find hedging strategies and unique arbitrage-free prices. In this paper complete financial markets are characterized by the simple condition of “call-completeness”.     

Options,Short Sales,and Market Completeness

This paper presents empirical evidence that trading in options contributes to both transactional and informational efficiency of the stock market by reducing the effect of constraints on short sales. The significantly higher average level of short interest exhibited by optionable stocks supports the argument that options facilitate short selling. We also find significant effects on option prices, related to the short interest in the underlying stock. We then present evidence that options also increase information efficiency. Earlier work, that is replicated and extended here, has suggested that short sale constraints cause stock prices to underweight negative information. Options appear to reduce that effect.