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
Date Written: June 17, 2017
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
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