Suchergebnisse

AbstractThe hybrid nature of convertible bonds continues to interest corporate financial managers, investors, and economists. While much theoretical and empirical research examines an issuer's choice between using straight debt and equity, little research evaluates how an issuer chooses among debt, equity, and convertible bonds. This study extends Marsh's [13] research on the differences between debt and equity issuers in the United Kingdom by examining U.S. industrial firms that issue debt, equity, or convertible bonds. It also illustrates how various distinguishing features influence the probability that each security will be issued.

Abstract
We consider convertible bonds that contractually stipulate payment standstill, contingent on a market indicator of a sovereign's credit worthiness breaching a distress threshold. This financial innovation limits ex ante the likelihood of debt crises and imposes ex post risk sharing between creditors and the debtor. Drawing from literature on contingent contracts, neglected risks, and bank CoCo, we extend prevailing arguments in favor of sovereign CoCo (S-CoCo). We discuss issues relating to their design: which market trigger, market discipline and sovereign incentives, and errors of false alarms or missed crises, and provide supporting evidence with eurozone data and a simple simulation on the use of S-CoCo. We develop a risk management model using these instruments to trade off the expected cost for sovereign financing over a long horizon, with tail risk. The model shows how contingent bonds can improve a country's debt risk profile. Using Greece as a case study the model illustrates improvements in expected cost vs. tail risk for the country when using contingent debt.

During the recent global financial crisis, numerous banking institutions faced acute capital strain. In order to support banking sectors, many governments stepped in and propped up financial institutions, often at the expense of the taxpayer. As a result, much regulatory work has focused on implementing measures to improve the resiliency of the banking sector. Enhancing the effectiveness of capital buffers as well as the ability to efficiently resolve banks both on a going-concern and gone-concern basis have been a few of the primary goals of recent regulatory efforts. Contingent convertible (Coco) bonds have increased in popularity during recent years, as banks have sought to expand the robustness of their respective capital buffers and meet new, higher regulatory requirements. Coco bonds are hybrid securities, which can serve to function as equity under certain circumstances and, therefore, may qualify as regulatory capital under Basel III standards. Key characteristics of Coco bonds are that they maintain the following contractual aspects: 1) a pre-defined trigger mechanism, and 2) loss-absorption capacity. This memo will review the main features of Cocos and will also analyse observations in practice so as to provide an overview of European Coco market issuance, as well as pricing considerations.

During the recent global financial crisis, numerous banking institutions faced acute capital strain. In order to support banking sectors, many governments stepped in and propped up financial institutions, often at the expense of the taxpayer. As a result, much regulatory work has focused on implementing measures to improve the resiliency of the banking sector. Enhancing the effectiveness of capital buffers as well as the ability to efficiently resolve banks both on a going-concern and gone-concern basis have been a few of the primary goals of recent regulatory efforts. Contingent convertible (Coco) bonds have increased in popularity during recent years, as banks have sought to expand the robustness of their respective capital buffers and meet new, higher regulatory requirements. Coco bonds are hybrid securities, which can serve to function as equity under certain circumstances and, therefore, may qualify as regulatory capital under Basel III standards. Key characteristics of Coco bonds are that they maintain the following contractual aspects: 1) a pre-defined trigger mechanism, and 2) loss-absorption capacity. This memo will review the main features of Cocos and will also analyse observations in practice so as to provide an overview of European Coco market issuance, as well as pricing considerations.