Understanding unrated bond issuance

• Autores: Armen Arakelyan, Eric Duca, Carlos Salvador
• Localización: Notas técnicas: [continuación de Documentos de Trabajo FUNCAS], ISSN-e 1988-8767, Nº. 778, 2016
• Idioma: inglés
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• Resumen

  • This paper assesses the importance of initial credit ratings for European firms, with an emphasis on Spanish companies. In the case of Spain, we examine how the coupon rate, as a proxy for the cost of debt, is related to the initial rating, while controlling for other bond and firm characteristics. We find that unrated bonds in Spain pay the same coupon as investment grade bonds, whereas high-yield bonds pay a higher coupon. In additional analyses of European firms in general we examine the change in yields of outstanding unrated bonds around the initial rating date. We find that the initial ratings result in a reduction in borrowing costs. In particular, the decrease in yield for companies that are assigned an investment grade rating for the first time is 0.14 percentage points, whereas for those that obtain a speculative rating the reduction is 0.08 percentage points