The issuance of secured debt and the secured credit premium. Evidence from the European corporate bond market.
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School of Business |
Bachelor's thesis
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Date
2022
Department
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Mcode
Degree programme
Rahoitus
Language
en
Pages
26
Series
Abstract
This paper studies the issuance of secured bonds in the European corporate bond market (2000-2022). I examine the secured credit premium which refers to lower credit spreads when corporates pledge a collateral for their debt. Secured creditors have priority over unsecured creditors in bankruptcy, but contrary to evidence found in the US bond market, I find the secured credit premium not to be statistically significant. Hence, pledging a collateral does not reduce the yield of a corporate bond in Europe. Secured bonds are primarily issued by below-investment-grade firms whereas high quality companies tend to avoid the issuance of secured debt. For low-rated firms, collateral is often a requirement to access financing. Investment-grade firms value keeping their assets unencumbered to maintain both financial and operational flexibility together with having the unused collateral as a form of insurance for economically adverse times.Description
Thesis advisor
Lof, MatthijsKeywords
Secured credit premium, Corporate bonds, Europe, Capital structure