Bond Debt Research Articles

Bond Financing and Debt in a Stepwise Dynamic CGE Model (La dette obligataire dans un MEGC dynamique sequentiel)

In this paper, we present a minimalist version of a model of bond financing and debt, to be imbedded in a stepwise dynamic CGE model. The proposed specification takes into account the following characteristics of bond financing: - bonds are issued at a given date; - they have a given face value; - they bear interest at a rate that is fixed relative to their face value; - they have a fixed maturity date, at which they are reimbursed by the issuer to the holders. Bonds compete on the securities market with shares, so that the yield demanded by the buyers of new bond issues increases as the cumulative bond debt grows relative to the stock of outstanding shares. Restrictions are imposed on the maturity structure of bonds, so that it is possible to attain a reasonable compromise between a realistic representation of the evolution of the debt, and the demands on model memory of past variables values which impinge on the current period. In the proposed model, the borrowing government reimburses bonds that have reached maturity, and pays interest on the outstanding debt. The prices of bonds issued at different periods and with different maturities are consistent with an arbitrage equilibrium. The supply of new bonds and of new shares is determined by the government's and entreprises' borrowing needs. Security demand reflects the rational choices of portfolio managing households, as in the Decaluwe-Souissi model. The model is presented in two versions: a basic model, and a model in which, although there is still no money, the real face value of bonds is eroded as it would due to inflation.

A Testable EBIT-Based Credit Risk Model

We extend the EBIT-based dynamic capital structure model proposed by Goldstein, Ju and Leland (2001) to finite-maturity debt and multiple bond issues. The complete tax structure of Goldstein, Ju and Leland (2001) is maintained. In our setting, the usually available market data can be used for empirical testing. Accounting data is not necessary to test the model. Using a numerical implementation of our model, we also analyze optimal bankruptcy policies and the impact of different tax regimes on security values.

Global Debt Market Growth, Security Structure, and Bond Pricing

A global bond is a security simultaneously offered and sold in two or more geographic markets. Since the first issue of US$1.5 billion in 1989 by the World Bank, the market has expanded quickly to absorb more than 500 annual issues, and raise more than US $500 billion in one year. International investors, financiers, and managers should understand the global bond market if they are to effect better financial decisions to enhance economic and financial performance. The yield spread paid by debtors for fixed-rate, U.S. dollar-denominated global bonds is shown to be statistically related to the size of the bond (negative); the term to maturity (positive), the credit rating of the borrower (negative); the gross fees paid by the borrower (positive); and to whether the bond is issued in registered (positive) versus bearer form. These variables account for approximately 60% of the yield spread for global bonds issued between 1989 and 2001.

戦間期日本における企業買収

The purpose of this paper is to analyze the effects of corporate acquisitions during the inter-war period in Japan, using the case of Oita Cement Co., Ltd. The focus of our analysis is the behavior and performance of the acquired company.In the first half of the 1920s, most of Oita Cement's directors were from among the firm's large shareholders, who at the same time held management positions in firms in other industries, for example banking, manufacturing, and commerce, and businessmen of local fame. Foremost among these was advisor Toyoji Wada, who was a leading magnate in financial circles and had significant influence over the firm's operating policy and decision-making.In the 1920s, Oita Cement pursued an aggressive growth strategy, including merging with two other cement companies, Asahi Cement Co. and Sakura Cement Co. At the time, Oita Cement had a burden of debt service and tried to reduce profitability through the issuance of debt bonds to finance an extensive capital expenditure program. The amount of debt increased from 1, 588, 000 yen to 7, 724, 000 yen through the 1920s.Onoda Cement acquired Oita Cement's stocks in 1930. Two directors, Shinzo Kasai and Shuzo Karim, who also held posts as Onoda directors, together with technical experts they dispatched to the firm, played an important role in formulating and implementing the recovery plan for Oita Cement through research of the firm's manufacturing capabilities, equipment, and factory management. With this acquisition as a turning point, by the end of 1934 Oita Cement paid back its borrowings from the Industrial Bank of Japan and other banks because the firm was able to borrow fixed-rate funds by issuing bonds. Onoda Cement's technological assistance made it possible for the firm to reduce manufacturing costs. Furthermore, in 1930 the firm adopted the accounting principle of listing incurred depreciation charges as expenses and also wrote off fixed assets. As a result, in first half of the 1930s Oita Cement saw a remarkable increase in net incomes both before and after depreciation.In conclusion, the acquiring company, Onoda Cement, promoted change in Oita Cement's behavior and contributed to its ability to regain profitability.

Unfinished business in the international dialogue on debt

From November 2001 to April 2003, the International Monetary Fund grappled with a radical proposal, the Sovereign Debt Restructuring Mechanism, for handling the external debt of insolvent governments of developing and transition economies. That proposal was rejected, but new “collective action clauses” that address some of the difficulties in restructuring bond debt are being introduced. In addition, IMF is developing a pragmatic and eclectic approach to assessing debt sustainability that can be useful to governments and creditors. However, many of the problems in restructuring sovereign debt remain and this paper suggests both specific reforms and modalities for considering them.

Agency Costs, Bank Specialness and Renegotiation

This paper proposes the yield spread between public bonds and bank loans of the same firm (the Bond-Bank spread) as a measure of compensation for agency costs that cannot be mitigated by bondholders but can be mitigated by banks due to their ability to monitor the firm and renegotiate the loan. In a model of debt pricing and choice, the tradeoff between firm moral hazard and bank opportunism, leads to co existence of relationship debt (bank loans) and uninformed debt (bonds) in its capital structure. Contrary to common concerns, bank oversight actually increases in the presence of bonds. Using a large and unique data set of bond and bank yields, for the same firm at the same point in time, matched by Credit Rating, Seniority, Maturity and adjusted for collateral differences, it is shown that the Bond - Bank Spread is negative for high credit quality firms and positive for low credit quality firms, consistent with the theoretical model. Applying a new econometric methodology on matching developed by Heckman et al(1998), the results of the sample are confirmed. The Bond - Bank Spread is about -76 basis points for A borrowers, 75 and 53 basis points for BBB and BB borrowers, increasing to 173 and 335 basis points for the B and CCC rated borrowers respectively. Thus agency costs or the specialness of banks seem to be important for BBB and below investment grade firms across the credit spectrum.

ALL FOR ONE … ONE FOR ALL? A PRINCIPAL COMPONENT ANALYSIS OF LATIN AMERICAN BRADY BOND DEBT FROM 1994 TO 2000

We use Principal Component Analysis (PCA) to study the Brady Bond Debt of the four primary Latin American sovereign issuers: Argentina, Brazil, Mexico, and Venezuela. Our dataset covers a period of 5½ years starting in July 1994 and consists of daily sovereign ("stripped") yield levels for the par and discount debt securities of each country. We examine the behavior of the characteristic roots and eigenvectors of the empirical covariance matrices computed sequentially over different periods. We show that, by and large, there exist two statistically significant components, or factors, which explain up to 90% of the realized variance. The eigenvector with largest eigenvalue corresponds to the variance attributable to "regional" ("Latin") risk. The second component strongly suggests the existence of a volatility risk factor associated to Venezuelan debt in relation to the rest of the region. A time-dependent factor analyis reveals that the importance of the variance explained by the factor changes over time and that this variation can be interpreted to some extent in terms of market events. In particular, we investigate the relation between the evolution of the PCA factors with the market dislocations that ocurred during the observation period, including the so-called Tequila effect, Asian flu, Ruble devaluation, and Real devaluation.

La question de la légitimité monétaire : le Patacón argentin

Jean-Marc Clerc — The question of monetary legitimacy : The Argentina Patacon case. During 2002, more than twenty parallel currencies are in circulation in Argentina. These are debt bonds used to pay public servants ;. yet they are not converted into local currency despite their potential liquidity and the remuneration they may procure. The Argentina crisis shows that the acceptability of these titles expresses a lack of reserve values for two reasons : as merchandises, they are structurally dominated by national money, and yet the latter no longer has the confidence of agents, due to its loss of social and political legitimacy.

All For One... One For All? A Principal Component Analysis of the Latin American Brady Bond Debt from 1994 to 2000

We use Principal Component Analysis (PCA) to study the Brady Bond Debt of the four primary Latin American sovereign issuers: Argentina, Brazil, Mexico, and Venezuela. Our dataset covers a period of 5 years starting in July 1994 and consists of daily sovereign (stripped) yield levels for the par and discount debt securities of each country. We examine the behavior of the characteristic roots and eigenvectors of the empirical covariance matrices computed sequentially over different periods. We show that, by and large, there exist two statistically significant components, or factors, which explain up to 90% of the realized variance. The eigenvector with largest eigenvalue corresponds to the variance attributable to regional (Latin) risk. The second component strongly suggests the existence of a volatility risk factor associated to Venezuelan debt in relation to the rest of the region. A time-dependent factor analysis reveals that the importance of the variance explained by the factor changes over time and that this variation can be interpreted, to some extent, in terms of market events. In particular, we investigate the relation between the evolution of the PCA factors with the market dislocations that occurred during the observation period, including the so-called Tequila effect, Asian flu, Ruble devaluation, and Real devaluation.

Deregulation, disintermediation, and agency costs of debt: evidence from Japan

Many Japanese firms reduced dependence on banks following financial deregulation in the 1980s. The financial architecture of Japanese firms after liberalization provides an opportunity to investigate the choice of financing with public bonds versus monitored bank loans. Examination of accounting and stock price data for a sample of Japanese firms in the late 1980s suggests that debt structure is related to variables that serve as proxies for agency costs of debt. In particular, we find that the proportion of bond debt is inversely related to growth opportunities, while the proportion of bank debt is positively related to growth opportunities.

Does It Make Any Difference Anymore? Competitive versus Negotiated Municipal Bond Issuance

Do municipal bonds sold through competition have lower interest rates for issuers than negotiated sales? Research done in the 1970s and 1980s suggests that, all else equal, interest costs are generally lower for competitively hid municipal bonds compared to negotiated bond sales William Simonsen and Mark D.Robbins explore this question in light of changes in the municipal bond market that suggest a need to revisit this question. Their findings indicate that on average, and all else equal, competitive sales result in lower interest cost to issuers compared to negotiated sales, and that this difference increases with the number of bids received. This research has added salience given several recent scandals and alleged improprieties in the municipal bond market. The amount of municipal bond debt in the United States now totals $1.2 trillion (Stone, 1994). Municipal bond sales totalled $174 billion in 1991, $235 billion in 1992, and reached $291 billion in 1993 before falling to $164 billion in 1994 (Stone, 1994; Doran, 1994; Schuchner, 1995). The size of this market makes decisions about municipal debt important to government decision makers and the citizenry. Research undertaken during the 1970s and 1980s suggests that competitive bond sales result in lower interest costs to issuers compared to negotiated issuance, all else equal. The municipal market has evolved since this research was undertaken in ways that suggest this finding may no longer apply. In this article, we examine municipal bond sales in Oregon during 1992 and 1993 to determine if interest costs vary systematically between competitive and negotiated issuance. Competitive versus Negotiated Sales For a competitive sale, the municipality structures the offering itself, typically with the assistance of a professional financial adviser. This work includes the preparation of the prospectus or official statement, the design of the issue and maturity schedules, the research, to select the timing of the sale, and the acquisition of a credit agency rating. The issuer next publishes a notice of the sale. Underwriters or investment syndicates review the offering and determine how much interest they need to pay in order to resell the bonds to investors. Based on this determination, they make a bid. When the bids are opened, the group representing the lowest interest cost to the issuer wins the bidding. The winner then typically reoffers the bonds to investors. The resulting difference between the buying price and the selling price is the gross underwriter spread. Negotiated sales are handled directly by underwriters who work with the issuer to determine the structure, price, and maturities of the offering. In some instances, a competitive bidding process may be used to select the underwriting firm. The interest costs in negotiated sales are determined by the terms of the agreement between the underwriter and the issuer. The underwriter then takes the offering to market. Again, the underwriter earnings are determined by the spread (Public Securities Association, 1990). Competitive sales place the burden of preparing the sale and bringing it to market on the issuer and the issuer's financial advisor (if there is one). This process may be less advantageous for inexperienced or poorly rated municipalities, which may not attract many bidders for their offerings. The evidence from empirical research of the municipal bond market indicates that interest cost to the issuer is significantly higher for both general obligation and revenue bonds sold through negotiation when compared with those sold through competitive bid (Kessel, 1971; Joehnk and Kidwell 1979; Leonard, 1983; Braswell, Nosari, and Sumners, 1983; Kidwell and Rogowski, 1983; Benson, 1979; Forbes and Peterson, 1979; Government Finance Research Center, 1993). This research also demonstrates that lower interest cost is significantly associated with the intensity of the bidding. …

Bond ratings, debt insurance, and hospital operating performance

In this study, the operating performances of not-for-profit community hospitals are compared among groups partitioned by bond ratings, level of debt insurance coverage, and number of bond rating services. The analysis indicates that the performances of hospitals with full debt insurance coverage resulting in AAA ratings are significantly lower than those of hospitals with partial debt insurance and with AA ratings or better. Indeed, the hospitals with full debt insurance resemble those with partial insurance that are rated BBB to A. These findings have implications for managerial action choices. Hospitals seeking external funding to improve their operating performance may consider the costs and benefits of full insurance coverage.

The effect of subordinated debt and surety bonds on the cost of capital for banks and the value of federal deposit insurance

The effect of subordinated debt and surety bonds on the cost of capital for banks and the value of federal deposit insurance

Participation Financing: A Comparison of the Characteristics of Convertible Debt and Straight Bonds Issued in Conjunction with Warrants

Participation Financing: A Comparison of the Characteristics of Convertible Debt and Straight Bonds Issued in Conjunction with Warrants

(1) De Keer Maurice v. État Belge.

State succession — Succession to obligations — Dismembered State — Distinction between local and “sovereignty” debts — Public Debt bonds of Belgian Congo — Whether repayable by Belgium or by Republic of the Congo — Principles of international law as applied in Belgium.

On financing land reform: A Mexican casebook

Only 170 national claimants, who presented 381 claims for the expropriation of a total area of 222, 797 hectares, were indemnified. This amounts to less than 0.5 percent of the total of 55 million hectares distributed until 1960. Compensation amounted to 24, 426, 800 pesos—2.8 million dollars—and was paid in agrarian debt bonds.