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Yield Spreads and Covenants: is there a negative relationship?
Uppsala University, Disciplinary Domain of Humanities and Social Sciences, Faculty of Social Sciences, Department of Business Studies.
Uppsala University, Disciplinary Domain of Humanities and Social Sciences, Faculty of Social Sciences, Department of Business Studies.
2015 (English)Independent thesis Basic level (degree of Bachelor), 10 credits / 15 HE creditsStudent thesis
Abstract [en]

Research concerning covenants has at large not examined what quantifiable relationship covenants have with yield spreads. We shed light on this topic as we evaluate Swedish bond indentures. By examining the relationship between covenants and yield spread, our results indicate whether covenants effectively mitigate the bondholder-stockholder conflict. The results from our OLS-model indicate that the poison put option and covenants restricting dividends and mergers have a positive relationship with the yield spread, and that the negative pledge has a negative relationship with the yield spread. Furthermore, our results indicate that some covenants are too costly for companies issuing investment grade bonds. Those covenants are therefore only included in bonds with higher yield spreads, where a conflict between bondholders and stockholders could be greater.

Abstract [sv]

Ett kvantifierbart förhållande mellan kovenanter och räntebasmarginalen har överlag i tidigare forskning inte undersökts. I denna uppsats åskådliggör vi detta förhållande genom att undersöka svenska företagsobligationer. Genom att studera relationen mellan kovenanter och räntebasmarginalen kan våra resultat visa på huruvida kovenanter motverkar konflikten mellan obligationsinnehavare och aktieägare. Resultaten från vår OLS-modell visar att poison put option och kovenanter som begränsar utdelningar och fusioner har ett positivt samband med räntebasmarginalen, medan negative pledge har ett negativt samband med räntebasmarginalen. Vidare visar våra resultat att vissa kovenanter är för dyra för företag som ger ut investment grade obligationer. Dessa kovenanter finns därför bara med i obligationer med högre räntebasmarginaler, där en konflikt mellan obligationsinnehavare och aktieägare kan vara större.

Place, publisher, year, edition, pages
2015. , 42 p.
Keyword [en]
covenants, yield spread, bondholder-stockholder conflict, Swedish bond market, Z-score
National Category
Business Administration
Identifiers
URN: urn:nbn:se:uu:diva-255975OAI: oai:DiVA.org:uu-255975DiVA: diva2:824236
Educational program
Bachelor Programme in Business and Economics
Supervisors
Available from: 2015-06-24 Created: 2015-06-21 Last updated: 2015-06-24Bibliographically approved

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