A Comparative Analysis of Ex Ante Credit Spreads: Structured Finance versus Straight Debt Finance

49 Pages Posted: 30 Nov 2013 Last revised: 20 Jun 2017

See all articles by João Pinto

João Pinto

Catholic University of Portugal - Porto, Católica Porto Business School

Manuel O. Marques

Universidade do Porto - Faculdade de Economia (FEP)

William L. Megginson

University of Oklahoma

Date Written: June 17, 2017

Abstract

This paper investigates the pricing of structured finance (SF)--either project finance loans or asset securitization bonds--and straight debt finance (SDF, corporate bonds) transactions. Using a cross-section of 47,351 Western European loans and bonds closed during the 2000-2016 period, we find that SF and SDF tranches are influenced differently by common pricing characteristics. Our results support the hypothesis of ABS and MBS transactions as mechanisms for reducing the cost of funding by transforming and improving credit quality. Similar results were obtained for project finance transactions financed through bond markets. We document that CDO tranches are on average being priced to have credit spreads higher than similarly rated corporate bonds, while investment-grade ABS and MBS do not compensate investors for facing higher systematic risk components. Finally, we find that the ECB’s ABS purchase programme led to a narrowing of credit spreads for corporate bonds, while this impact is asset-class specific for asset securitization bonds.

Keywords: Debt pricing; structured finance; project finance; corporate bonds; financial crisis; term structure

JEL Classification: F34; G01; G12; G21; G32

Suggested Citation

Pinto, João M. and Marques, Manuel O. and Megginson, William L., A Comparative Analysis of Ex Ante Credit Spreads: Structured Finance versus Straight Debt Finance (June 17, 2017). Available at SSRN: https://ssrn.com/abstract=2339480 or http://dx.doi.org/10.2139/ssrn.2339480

João M. Pinto (Contact Author)

Catholic University of Portugal - Porto, Católica Porto Business School ( email )

Rua Diogo de Botelho, 1327
Porto, 4169-005
Portugal
+351 22 619 62 00 (Phone)

HOME PAGE: http://www.porto.ucp.pt/

Manuel O. Marques

Universidade do Porto - Faculdade de Economia (FEP) ( email )

Rua Roberto Frias
s/n
Porto, 4200-464
Portugal

William L. Megginson

University of Oklahoma ( email )

307 W Brooks, 205A Adams Hall
Norman, OK 73019
United States
(405) 325-2058 (Phone)
(405) 325-1957 (Fax)

HOME PAGE: http://faculty-staff.ou.edu/M/William.L.Megginson-

Register to save articles to
your library

Register

Paper statistics

Downloads
237
Abstract Views
1,107
rank
129,042
PlumX Metrics