Topic
Credit rating
About: Credit rating is a research topic. Over the lifetime, 7585 publications have been published within this topic receiving 154380 citations.
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TL;DR: The authors analyzes debt maturity structure for borrowers with private information about their future credit rating, and finds that the optimal maturity structure trades off a preference for short maturity due to expecting their credit rating to improve, against liquidity risk, which is the risk that a borrower will lose the nonassignable rents due to excessive liquidation incentives of lenders.
Abstract: This paper analyzes debt maturity structure for borrowers with private information about their future credit rating. Borrowers' projects provide them with rents that they cannot assign to lenders. The optimal maturity structure trades off a preference for short maturity due to expecting their credit rating to improve, against liquidity risk. Liquidity risk is the risk that a borrower will lose the nonassignable rents due to excessive liquidation incentives of lenders. Borrowers with high credit ratings prefer short-term debt, and those with somewhat lower ratings prefer long-term debt. Still lower rated borrowers can issue only short-term debt.
1,661 citations
TL;DR: In this article, the optimal number of creditors a company borrows from and allocation of security interests among creditors and intercreditor voting rules that govern renegotiation of debt contracts are analyzed.
Abstract: Within an optimal contracting framework, we analyze the optimal number of creditors a company borrows from. We also analyze the optimal allocation of security interests among creditors and intercreditor voting rules that govern renegotiation of debt contracts. The key to our analysis is the idea that these aspects of the debt structure affect the outcome of debt renegotiation following a default. Debt structures that lead to inefficient renegotiation are beneficial in that they deter default, but they are also costly if default is beyond a manager's control. The optimal debt structure balances these effects. We characterize how the optimal debt structure depends on firm characteristics such as its technology, its credit rating, and the market for its assets.
1,382 citations
TL;DR: In this article, a Markov model for the term structure of credit risk spreads is proposed, based on Jarrow and Turnbull (1995), with the bankruptcy process following a discrete state space Markov chain in credit ratings.
Abstract: This article provides a Markov model for the term structure of credit risk spreads. The model is based on Jarrow and Turnbull (1995), with the bankruptcy process following a discrete state space Markov chain in credit ratings. The parameters of this process are easily estimated using observable data. This model is useful for pricing and hedging corporate debt with imbedded options, for pricing and hedging OTC derivatives with counterparty risk, for pricing and hedging (foreign) government bonds subject to default risk (e.g., municipal bonds), for pricing and hedging credit derivatives, and for risk management.
1,245 citations
Posted Content•
TL;DR: In this article, the authors present the first systematic analysis of the determinants and impact of thesovereign credit ratings assigned by the two leading U.S.agencies, Moody's Investors Service and Standard and Poor's.
Abstract: n recent years, the demand for sovereign credit rat-ings—the risk assessments assigned by the creditrating agencies to the obligations of central govern-ments—has increased dramatically. More govern-ments with greater default risk and more companiesdomiciled in riskier host countries are borrowing in inter-national bond markets. Although foreign government offi-cials generally cooperate with the agencies, ratingassignments that are lower than anticipated often promptissuers to question the consistency and rationale of sover-eign ratings. How clear are the criteria underlying sover-eign ratings? Moreover, how much of an impact do ratingshave on borrowing costs for sovereigns?To explore these questions, we present the firstsystematic analysis of the determinants and impact of thesovereign credit ratings assigned by the two leading U.S.agencies, Moody’s Investors Service and Standard andPoor’s.
1,060 citations
TL;DR: In this paper, the relationship between credit default swap spreads and bond yields was examined and conclusions on the benchmark risk-free rate used by participants in the credit derivatives market were reached.
Abstract: A company’s credit default swap spread is the cost per annum for protection against a default by the company. In this paper we analyze data on credit default swap spreads collected by a credit derivatives broker. We first examine the relationship between credit default spreads and bond yields and reach conclusions on the benchmark risk-free rate used by participants in the credit derivatives market. We then carry out a series of tests to explore the extent to which credit rating announcements by Moody’s are anticipated by participants in the credit default swap market.
1,037 citations