The Decision to Repurchase Debt
31 Pages Posted: 22 Mar 2009
Date Written: March 18, 2009
We compile a diverse sample of 208 debt tender offers executed by 189 firms during the period 1989 - 1996. On average, tender offers are wealth-creating events, with cumulative equity announcement returns of 1.47%. Tender offers financed with equity fail to add value, but those financed with asset sales generate mean cumulative equity announcement returns of 3.77%. Compared to a matched sample of non-tendering firms, the firms that tender debt have less cash, greater long-term debt and more assets. Prior to the tender event, debt-tendering firms have lower operating returns than their peers; they also trade at a discount. After the tender offer, assets increase, operating returns improve and the tendering firms are awarded a market premium.
Keywords: debt tender, capital structure, covenants
JEL Classification: G32
Suggested Citation: Suggested Citation