Debt maturity determinants in Brazil: evidence from private and public corporate borrowings

This study provides an empirical investigation of the determinants of long-term debt maturity in Brazil. We built a unique database that includes privately placed debt and public debt for 308 publicly traded, non-financial Brazilian companies, from 2009 to 2013. We perform GMM panel analyses using as dependent variables the amount of long-term debt payable in more than one, three, and five years for total debt, BNDES (Brazilian Development Bank) debt and corporate bonds. The results show that the BNDES finances less risky firms, i.e., those that are larger, older, more tangible and more transparent. We also find support for information asymmetry theories, as companies with higher transparency levels have similar leverage levels relative to others but higher proportions of long-term debt in their capital structures. Regarding debt levels, we find that more levered companies are larger, less profitable, more tangible and have fewer growth opportunities. To our knowledge, this is the first paper to address the determinants of long-term debt maturity in Brazil that uses various specifications of long-term debt and that examines different types of debt.

Debt Maturity: Is Long-Term Debt Optimal?

We model and calibrate the arguments in favor and against short-term and long-term debt. These arguments broadly include: maturity premium, sustainability, and service smoothing. We use a dynamic-equilibrium model with tax distortions and government outlays uncertainty, and model maturity as the fraction of debt that needs to be rolled over every period. In the model, the benefits of defaulting are tempered by higher future interest rates. We then calibrate our artificial economy and solve for the optimal debt maturity for Brazil as an example of a developing country and the US as an example of a mature economy. We obtain that the calibrated costs from defaulting on long-term debt more than offset costs associated with short-term debt. Therefore, short-term debt implies higher welfare levels.

The effects of corporate social performance on the cost of corporate debt and credit ratings

This study investigates the differential impact that various dimensions of corporate social performance have on the pricing of corporate debt as well as the assessment of the credit quality of specific bond issues. The empirical analysis, based on an extensive longitudinal data set, suggests that overall, good performance is rewarded and corporate social transgressions are penalized through lower and higher corporate bond yield spreads, respectively. Similar conclusions can be drawn when focusing on either the bond rating assigned to a specific debt issue or the probability of it being considered to be an asset of speculative grade.

Implied Hazard Rates Analysis Through Brazilian Corporate Debt

No Brasil, o mercado de crédito corporativo ainda é sub-aproveitado. A maioria dos participantes não exploram e não operam no mercado secundário, especialmente no caso de debêntures. Apesar disso, há inúmeras ferramentas que poderiam ajudar os participantes do mercado a analisar o risco de crédito e encorajá-los a operar esses riscos no mercado secundário. Essa dissertação introduz um modelo livre de arbitragem que extrai a Perda Esperada Neutra ao Risco Implícita nos preços de mercado. É uma forma reduzida do modelo proposto por Duffie and Singleton (1999) e modela a estrutura a termo das taxas de juros através de uma Função Constante por Partes. Através do modelo, foi possível analisar a Curva de Perda Esperada Neutra ao Risco Implícita através dos diferentes instrumentos de emissores corporativos brasileiros, utilizando Títulos de Dívida, Swaps de Crédito e Debêntures. Foi possível comparar as diferentes curvas e decidir, em cada caso analisado, qual a melhor alternativa para se tomar o risco de crédito da empresa, via Títulos de Dívida, Debêntures ou Swaps de Crédito.

Corporate governance in Brazil, Chile, Colombia, Mexico and Peru: The determinants of risk in corporate debt issuance

This study builds on the Corporate governance and development of capital markets in Latin America report published by the Development Bank of Latin America (CAF) and the Economic Commission for Latin America and the Caribbean (ECLAC), which looked at the regulatory framework related to the principles of corporate governance in the region and assessed its contribution to the development of capital markets. This book complements the previous study and is the result of a joint effort by CAF, the Inter- American Development Bank (IDB) and ECLAC to identify the key elements of corporate governance for determining debt instrument issuance risk in potential conflicts of interest arising from relationships among shareholders, executives and bondholders

Leveraged buyouts and corporate debt : hearing before the Committee on Finance, United States Senate, One Hundred First Congress, first session.

Item 1038-A, 1038-B (microfiche).

Interest rate (in)sensitivity of emerging market corporate debt : economic analysis based on 2002-2015 empirical evidence

Interest rate sensitivity assessment framework based on fixed income yield indexes is developed and applied to two types of emerging market corporate debt: investment grade and high yield exposures. Our research advances beyond the correlation analyses focused on co- movements in yields and/or spreads of risky and risk-free assets. We show that correlation- based analyses of interest rate sensitivity could appear rather inconclusive and, hence, we investigate the bottom line profit and loss of a hypothetical model portfolio of corporates. We consider historical data covering the period 2002 – 2015, which enable us to assess interest rate sensitivity of assets during the development, the apogee, and the aftermath of the global financial crisis. Based on empirical evidence, both for investment and speculative grades securities, we find that the emerging market corporates exhibit two different regimes of sensitivity to interest rate changes. We observe switching from a positive sensitivity under the normal market conditions to a negative one during distressed phases of business cycles. This research sheds light on how financial institutions may approach interest rate risk management, evidencing that even plain vanilla portfolios of emerging market corporates, which on average could appear rather insensitive to the interest rate risk in fact present a binary behavior of their interest rate sensitivities. Our findings allow banks and financial institutions for optimizing economic capital under Basel III regulatory capital rules.

Governed by the cycle : direct and inverted interest-rate sensitivity of emerging market corporate debt

An innovative approach to quantify interest rate sensitivities of emerging market corporates is proposed. Our focus is centered at price sensitivity of modeled investment grade and high yield portfolios to changes in the present value of modeled portfolios composed of safe-haven assets, which define risk-free interest rates. Our methodology is based on blended yield indexes. Modeled investment horizons are always kept above one year thus allowing to derive empirical implications for practical strategies of interest rate risk management in the banking book. As our study spans over the period 2002 – 2015, it covers interest rate sensitivity of assets under the pre-crisis, crisis, and post-crisis phases of the economic cycles. We demonstrate that the emerging market corporate bonds both, investment grade and high yield types, depending on the phase of a business cycle exhibit diverse regimes of sensitivity to interest rate changes. We observe switching from a direct positive sensitivity under the normal pre-crisis market conditions to an inverted negative sensitivity during distressed turmoil of the recent financial crisis, and than back to direct positive but weaker sensitivity under new normal post-crisis conjuncture. Our unusual blended yield-based approach allows us to present theoretical explanations of such phenomena from economics point of view and helps us to solve an old controversy regarding positive or negative responses of credit spreads to interest rates. We present numerical quantification of sensitivities, which corroborate with our conclusion that hedging of interest rate risk ought to be a dynamic process linked to the phases of business cycles as we evidence a binary-like behavior of interest rate sensitivities along the economic time. Our findings allow banks and financial institutions for approaching downside risk management and optimizing economic capital under Basel III regulatory capital rules.