New Developments in the Sphere of Liability Management in the European Long and Medium-Term Debt Market in 2004: Increased Popularity of Exchange Offers: Driving Forces, Techniques, Innovations, and Prospects

Abstract

The European bond markets recorded an increase in the liability management activity in 2004, characterized by a relatively high number of liability management transactions. The aim of this work is to address the reasons for the increase in the number of liability exercises in 2004, the borrower and investor motivations for engaging in such transactions and the real economic impact of these exercises. We have observed 'macro' factors as well as company specific factors that caused the increase of liability management activity in European corporate debt market. High volumes of issue during the period from 2001 to 2003, that had to be refinanced in order to benefit from interest and credit rate market conditions, and the first generation of 5-year euro issues launched in 1999-2001 approaching their maturity can both be attributed to the 'macro' factors. While as a company specific factor we consider the fact that many companies had debt maturity profiles with high concentration of debt issues approaching their maturity in the same period, which, in turn, urged those companies to reduce the refinancing risk by extending maturity of portions of the debts by the use of exchange offers. Prior to the discussion of the issues described above this work provides a theoretical basis by reviewing Asset and Liability Management, Liability Management, and Debt Refunding.