Collateral pricing

Efraim Benmelech and Nittai K. Bergman

Journal of Financial Economics, 2009, vol. 91, issue 3, 339-360

Abstract: We examine how collateral affects the cost of debt capital. Using a novel data set of secured debt issued by U.S. airlines, we construct industry-specific measures of collateral redeployability. We show that debt tranches that are secured by more redeployable collateral exhibit lower credit spreads, higher credit ratings, and higher loan-to-value ratios--an effect which our estimates show to be economically sizeable. Our results suggest that the ability to pledge collateral, and in particular redeployable collateral, lowers the cost of external financing and increases debt capacity.

Keywords: Collateral; Redeployability; Liquidation; Collateralized; debt; obligations; Airlines (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (52)

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Working Paper: Collateral Pricing (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:91:y:2009:i:3:p:339-360

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