Search Results
Journal Article
The so-called Texas ratio
Siems, Thomas F.
(2012)
Financial Insights
, Volume 1
, Issue 3
, Pages 1-3
Working Paper
Pipeline Risk in Leveraged Loan Syndication
Bruche, Max; Meisenzahl, Ralf R.; Malherbe, Frederic
(2017-04-06)
Leveraged term loans are typically arranged by banks but distributed to institutional investors. Using novel data, we find that to elicit investors' willingness to pay, arrangers expose themselves to pipeline risk: They have to retain larger shares when investors are willing to pay less than expected. We argue that the retention of such problematic loans creates a debt overhang problem. Consistent with this, we find that the materialization of pipeline risk for an arranger reduces its subsequent arranging and lending activity. Aggregate time series exhibit a similar pattern, which suggests ...
Finance and Economics Discussion Series
, Paper 2017-048
Working Paper
Financing Ventures: Some Macroeconomics
Greenwood, Jeremy; Sanchez, Juan M.; Han, Pengfei
(2017-08-01)
The relationship between venture capital and growth is examined using an endogenous growth model incorporating dynamic contracts between entrepreneurs and venture capitalists. At each stage of financing, venture capitalists evaluate the viability of startups. If viable, venture capitalists provide funding for the next stage. The success of a project depends on the amount of funding. The model is confronted with stylized facts about venture capital; viz., statistics by funding round concerning the success rates, failure rates, investment rates, equity shares, and IPO values. Raising capital ...
Working Papers
, Paper 2017-35
Report
COVID Response: The Primary Dealer Credit Facility
McLaughlin, Susan; Martin, Antoine
(2021-09-01)
The Federal Reserve established a new Primary Dealer Credit Facility (PDCF) in March 2020, to allow primary dealers to support smooth market functioning and facilitate the availability of credit to businesses and households, in the face of deteriorating conditions in the market for triparty repo financing due to the coronavirus pandemic. A similar facility had been established in March 2008 to help restore the orderly functioning of the market, following the near-bankruptcy of Bear Stearns, and to prevent the spillover of distress to other financial firms. This paper provides an overview of ...
Staff Reports
, Paper 981
Report
Rollover risk as market discipline: a two-sided inefficiency
Eisenbach, Thomas M.
(2013)
Why does the market discipline that financial intermediaries face seem too weak during booms and too strong during crises? This paper shows in a general equilibrium setting that rollover risk as a disciplining device is effective only if all intermediaries face purely idiosyncratic risk. However, if assets are correlated, a two-sided inefficiency arises: Good aggregate states have intermediaries taking excessive risks, while bad aggregate states suffer from costly fire sales. The driving force behind this inefficiency is an amplifying feedback loop between asset values and market discipline. ...
Staff Reports
, Paper 597
Working Paper
Pre-LBO Credit Market Conditions and Post-LBO Target Behavior
Kwak, Seung; Press, Charles
(2023-12-01)
In the context of leveraged buyouts (LBOs), this paper empirically studies the relation between pre-buyout credit market conditions and the post-buyout behavior of target companies, employing a supervisory dataset to overcome limited data availability for post-buyout target financial information. We propose an LBO-specific measure of (changes of) credit market conditions---the short-term (6-month) change of credit spreads leading up to buyout close. Using this proposed measure, we show that loosening pre-LBO credit market conditions, which are related to higher buyout leverage consistent with ...
Finance and Economics Discussion Series
, Paper 2023-077
Working Paper
Gas Guns and Governments: Financial Costs of Anti-ESG Policies
Ivanov, Ivan T.; Garrett, Daniel
(2023-01-02)
We study how regulation limiting ESG policies distorts financial market outcomes. In 2021 Texas enacted laws that prohibit municipalities from contracting with banks with certain ESG policies, leading to the exit of five of the largest municipal bond underwriters from the state. Issuers previously reliant on these underwriters face higher uncertainty and borrowing costs since the enactment of the laws. These effects are consistent with a deterioration in underwriter competition as issuers face fewer potential underwriters. Texas issuers will incur $300- $500 million in additional interest on ...
Working Paper Series
, Paper WP 2023-07
Working Paper
Are the Borrowing Costs of Large Financial Firms Unusual?
Zarutskie, Rebecca; Anderson, Christopher; Ahmed, Javed I.
(2015-03-12)
Estimates of investor expectations of government support of large financial firms are often based on large financial firms' lower borrowing costs relative to smaller financial firms. Using pricing data on credit default swaps (CDS) and corporate bonds over the period 2004 to 2013, however, we find that the CDS and bond spreads of financial firms are no more sensitive to borrower size than the spreads of non-financial firms. Outside of the financial crisis period, spreads are more sensitive to borrower size in several non-financial industries. We find that size-related differences in spreads ...
Finance and Economics Discussion Series
, Paper 2015-24
Working Paper
Counterparty Risk and Counterparty Choice in the Credit Default Swap Market
Gordy, Michael B.; Gadgil, Salil; Du, Wenxin; Vega, Clara
(2016-09-08)
We investigate how market participants price and manage counterparty risk in the post-crisis period using confidential trade repository data on single-name credit default swap (CDS) transactions. We find that counterparty risk has a modest impact on the pricing of CDS contracts, but a large impact on the choice of counterparties. We show that market participants are significantly less likely to trade with counterparties whose credit risk is highly correlated with the credit risk of the reference entities and with counterparties whose credit quality is relatively low. Furthermore, we examine ...
Finance and Economics Discussion Series
, Paper 2016-087
Report
Climate Regulatory Risks and Corporate Bonds
Starks, Laura; Seltzer, Lee; Zhu, Qifei
(2022-04-01)
Investor and policymaker concerns about climate risks suggest these risks should affect the risk assessment and pricing of corporate securities, particularly for firms facing stricter regulatory enforcement. Using corporate bonds, the authors find support for this hypothesis. Employing a shock to expected climate regulations, they show climate regulatory risks causally affect bond credit ratings and spreads. A structural credit model indicates that the increased spreads for high carbon issuers, especially those located in stricter regulatory environments, are driven by changes in firms' asset ...
Staff Reports
, Paper 1014
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