 The CDS market reaction to loan renegotiation announcementsFlorina Silaghi, Alfredo Martin-Oliver and Ahmed Sewaid Journal of Banking & Finance, 2022, vol. 138, issue C Abstract: This paper investigates the impact of loan renegotiations on firms’ credit risk using the CDS market as a measure of credit risk. Using a sample of public US firms for 2010–2017, we document a significant decrease in CDS spreads and returns that we interpret as evidence of a certification effect. The finding suggests that the loan renegotiations are on average beneficial for the firm. The strongest reactions are for material amendments such as line of credit amount or tranche amount. Additionally, we find negative stock market returns, although barely statistically significant. Moreover, we identify an anticipation effect of up to 30 days before the announcement date on the CDS market, possibly due to informed trading by CDS banks of their speculative-rated borrowers’ CDS contracts. Finally, we show that firm-specific CDS returns lead idiosyncratic stock returns, especially around the announcement date and for speculative-rated firms. Keywords: Renegotiation; Bank loans; Credit default swaps; Event studies (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:138:y:2022:i:c:s0378426622000310 DOI: 10.1016/j.jbankfin.2022.106431 Access Statistics for this article Journal of Banking & Finance is currently edited by Ike Mathur More articles in Journal of Banking & Finance from Elsevier |
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