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Advisor(s)
Abstract(s)
Structured finance (SF) – project finance (PF) loans and asset securitization
(AS) bonds – and straight debt finance (SDF) – corporate bonds (CB) –
transactions are priced in segmented capital markets. Credit spreads
are higher for PF loans than they are for AS and CB issues. SF and SDF
credit spreads are directly related to default and currency risks, while the
slope of the yield curve impacts negatively the credit spreads. The loan
to value ratio proves positively related to PF loans and negatively related
to AS bonds, while the number of banks has a negative impact on the
credit spread for AS and CB issues. PF loan credit spreads and fees are
shown to be complements rather than supplements. Borrowers from the
U.K. raise funds in PF and CB markets at a higher credit spread and the
impact of country risk on the credit spread is positive for PF and CB issues.
The 2007/2008 financial crisis have imposed a significant impact on credit
spreads. The average credit spread has increased 329.1 bps for PF loans,
206.5 bps for AS bonds, and 220.3 bps for CB issues during the crisis
period. Finally, a robust hump-shaped relationship between credit spread
and maturity is found for PF loans while a linear positive relationship
remains strongly significant for CB.
Description
Keywords
loan and bond pricing Structured finance Straight debt finance Project finance Asset securitization Corporate bonds Financial crisis Term structure of credit spreads.
Pedagogical Context
Citation
PINTO, João; MARQUES, Manuel O.; MEGGINSON, William L. - A comparative analysis of ex ante credit spreads: structured finance versus straight debt finance – In 8th Portuguese Finance Network Conference, Vilamoura, Portugal, 18 Junho, 2014. – In COELHO, Luís Miguel Serra; PEIXINHO, Rúben Miguel Torcato Peixinho (org) - Portuguese Finance Network Conference. Algarve: School of Economics - University of the Algarve, 2014. ISBN 978-989-20-4584. p. 71-123