Priority Spreading of Corporate Debt

• 成果类型: Article
• 署名作者: Badoer, Dominique C.; Dudley, Evan; James, Christopher M.
• 署名单位: University of Illinois System; University of Illinois Chicago; University of Illinois Chicago Hospital; Queens University - Canada; State University System of Florida; University of Florida
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhz045
• 发表日期: 2020
• 页码: 261
• 关键词: capital structure; Bank debt; ABSOLUTE PRIORITY; UNITED-STATES; COMPETITION; FIRMS; bankruptcy; covenants; CHOICE; equity

摘要

Priority spreading refers to the practice of firms increasing their reliance on secured and subordinated debt and reducing their reliance on senior debt as their credit quality deteriorates. We argue that priority spreading occurs because security provides creditors with greater protection from dilution from other creditors than do covenants that prioritize payments. Consistent with this argument, we find that secured bank creditors are rarely diluted by junior creditors in distressed restructurings, whereas senior unsecured creditors are frequently diluted, exogenous increases in asset volatility result in greater priority spreading and yields on senior and subordinated bonds converge as asset volatility increases.