Dans le cadre du Séminaire de Recherche en Finance, Prof. Zsuzsanna Fluck, Michigan State University, donnera une conférence intitulée : The Defeasance of Control Rights
We analyze one frequently used clause in public bonds called 'covenant defeasance'.
Defeasance allows the bond issuer to remove all of the bond's covenants by placing the remaining outstanding payments with a trustee in an escrow account. Bond covenants are predominantly negative (non-contingent) covenants. By giving the firm an option to remove covenants, non-contingent control rights can be made state-contingent even when no interim signals are available.
We provide a theoretical justification for defeasance and show empirically that defeasance allows for the inclusion of more covenants in bond issues.
We document that investors are willing to pay a premium of 28 basis points for defeasable bonds.
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