Abstract
This paper analyzes the credit market's reaction to loan renegotiation announcements through changes in credit default swap (CDS) spreads. Using a sample of public US firms during the period 2010-2017, we document a positive and significant CDS market reaction (decrease in CDS spreads). The strongest reactions are for material amendments such as line of credit amount or tranche amount. On the contrary, we find no significant stock market reaction. Moreover, we identify an anticipation effect of up to 30 days before the announcement date on the CDS market. Finally, we show that firm-specific CDS returns lead the idiosyncratic component of stock returns especially around the announcement date and for speculative-rated firms.
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