Topic: Do bond holders value senior lender control rights? [Senior lender control rights and the pricing of corporate bonds]

Speaker: Bo Li, Assistant Professor of Finance, PBC School of Finance, Tsinghua University

Date: October 15th, 2014 (Wed.)

Time: 12:10-1:10pm

Location: Building 1, Room 501, Faculty Lounge

Language: English

Abstract:

We find that covenant strictness or intensity of bank loans in a firm’s capital structure is positively related to corporate bond yield at issuance. The relation is robust to the inclusion of bond characteristics, industry and creditor market conditions, and firm-level controls including fixed effects, and using lender-specific shocks as an instrument. The positive relation is less pronounced in firms where junior creditors seem to have some bargaining power and liquidation costs are high. Our results suggest that bond holders negatively price senior bank creditor control rights, even though bank monitoring may help resolve agency problems of the issuers.