The secured credit premium and the issuance of secured debt

Efraim Benmelech, Nitish Kumar and Raghuram Rajan

Journal of Financial Economics, 2022, vol. 146, issue 1, 143-171

Abstract: Credit spreads for secured debt are lower than for unsecured debt, especially when a firm's credit quality deteriorates, the economy slows, or average credit spreads widen. Yet investment-grade firms tend to be reluctant to issue secured debt at all times. In contrast, we find that for firms that are rated below investment grade, the likelihood of secured debt issuance increases as firm credit quality deteriorates, the economy slows, or average credit spreads widen. This differential pattern of issue behavior is consistent with highly rated firms seeing unencumbered collateral as a form of insurance, to be used only in extremis.

Keywords: Business cycles; Collateral; Credit spreads; Secured debt (search for similar items in EconPapers)
JEL-codes: E32 G12 G33 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (6)

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Related works:
Working Paper: The Secured Credit Premium and the Issuance of Secured Debt (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:146:y:2022:i:1:p:143-171

DOI: 10.1016/j.jfineco.2022.06.005

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