Original issue high yield bonds: aging analyses of defaults, exchanges, and calls
Article Abstract:
This paper presents an aging analysis of 741 high yield bonds and finds default, exchange, and call percentages substantially higher than reported in earlier studies. By December 31, 1988, cumulative defaults are 34 percent for bonds issued in 1977 and 1978 and range from 19 to 27 percent for issue years 1979-1983 and from 3 to 9 percent for issue years 1984-1986. Exchanges are also a significant factor although they often are followed by default. Moreover, a significant percentage of high yield debt, 26-47 percent for 1977-1982, has been called. By December 31, 1988, approximately one third of the bonds issued in 1977-1982 had defaulted or been exchanged, and an additional one third had been called. On average, only 28 percent of these issues are still outstanding. There is no evidence that early results for more recent issue years differ markedly from issue years 1977 to 1982. (Reprinted by permission of the publisher.)
Publication Name: Journal of Finance
Subject: Business
ISSN: 0022-1082
Year: 1989
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Convertible debt: corporate call policy and voluntary conversion
Article Abstract:
This paper examines why, in contrast to the predictions of finance theory, firms do not call convertible debt when the conversion price exceeds the call price. The empirical results suggest that the principal reason is because some firms enjoy an advantage of paying less in after-tax interest than they would pay in dividends were the bond converted. This cash flow incentive is the inverse of an investor's incentive to convert voluntarily if the converted dividends are greater than the bond's coupon. Because of taxation, however, the decisions by investors and firms are not symmetric, and there exist bonds which the firm may not call and an investor will not convert. The results also find that voluntary conversion is significantly related to both the conversion price and the differential between the coupon and the dividends on the converted stock. (Reprinted by permission of the publisher.)
Publication Name: Journal of Finance
Subject: Business
ISSN: 0022-1082
Year: 1991
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Convertible bonds are not called late
Article Abstract:
Starting with Ingersoll (1977b) the academic literature has repeatedly sought to explain why convertible bonds are called late. The findings here demonstrate there is no call delay to explain. This paper finds that most convertible bonds, given their call protection, are called as soon as possible. For those that are not, there are significant cash flow advantages to delaying. The median call delay for all convertible bonds is less than four months. If a safety premium is desired to assure the conversion value will exceed the call price at the end of call notice period, the median call period is less than a month. (Reprinted by permission of the publisher.)
Publication Name: Journal of Finance
Subject: Business
ISSN: 0022-1082
Year: 1995
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