Abstract
Many companies in recent years are seeking new ways to manage their debt liabilities. Companies with outstanding debt securities can engage in a variety of transactions with bond holders. Choices will depend to some extent on whether or not the company has access to cash and is able to purchase in the open market or through cash tender offer, or if without cash, by making an exchange offer of new securities for existing securities. Often in either case, there is a bond indenture consent solicitation needed to waive or amend existing bond terms, the announcement of which signals management’s intent to the market. Given the increasing prevalence of this practice as a debt management tool, this study seeks to determine whether it is truly perceived to be value enhancing by stockholders. Using an event study of 50 companies announcing bond indenture consent solicitations, we find that shareholders do benefit, and companies appear well served by this practice.
Highlights
Bond indenture consent solicitations are not a new phenomenon to corporate debt restructuring
Because consent solicitations are assumed to represent stockholder interests and given their popularity in recent years and promotion as a debt/liability management tool, we propose the following hypothesis: H1: Stockholders will experience positive abnormal returns following firm bond indenture consent solicitation announcements related to debt restructuring
The first hypothesis that stockholders will experience positive abnormal returns following firm bond indenture consent solicitation announcements related to debt restructuring is supported
Summary
Bond indenture consent solicitations are not a new phenomenon to corporate debt restructuring. There has, been an unprecedented level of debt exchange offer activity in the United States and in Europe (de Jong, Roosenboom and Schramade [1]) in recent years following the global financial crisis and dislocation in financial markets (Dunne and Kelly [2]). A number of factors may influence a firm’s decision to offer a debt exchange, such as a lack of short-term liquidity, an inability to maintain required financial ratios in loan agreements, the absence of a meaningful credit market to refinance maturing indebtedness and the possibility of a ratings downgrade or bankruptcy, among others (Saggese, Noel and Mohr [3]). There is no guarantee that covenants that were optimal when the debt was issued will remain optimal over time
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
