Should corporate debt include a rating trigger?

• 成果类型: Article
• 署名作者: Bhanot, K; Mello, AS
• 署名单位: University of Wisconsin System; University of Wisconsin Madison; University of Texas System; University of Texas at San Antonio
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2005.01.002
• 发表日期: 2006
• 页码: 69-98
• 关键词: Covenant; rating trigger; Corporate debt; AGENCY COSTS; asset substitution

摘要

Recent corporate debt offerings have included a covenant specifying a pre-determined payment to debtholders when the debt is downgraded. We examine the incentive for equityholders to increase firm risk (and the associated costs) when debt includes a rating trigger. Equityholders of firms with a low-risk profile and operating flexibility choose debt with a trigger, while equityholders of firms with a high-risk profile and less flexibility choose regular debt. A trigger that requires an equity infusion better mitigates conflicts between equityholders and debtholders than a trigger paid by liquidating assets. A trigger that increases the coupon rate is not optimal. (c) 2005 Elsevier B.V. All rights reserved.