Flight of Intermediation: Debt Choice of Foreign Issuers Around the Financial Crisis
49 Pages Posted: 13 Dec 2015 Last revised: 3 Aug 2018
Date Written: July 26, 2018
The recent financial crisis offers a natural experiment to study how corporate debt choice is affected in distress times globally. We focus on a unique market segment of Rule 144A private debt issued by foreign firms in the U.S. pre-, during, and post-crisis periods. Using an exhaustive sample of foreign bond issuances in the U.S. from over 65 countries between 1990 and 2013, we examine how financial crisis affected three key corporate decisions viz., debt choice, pricing, and market timing, by comparing public (Yankee) and private (Rule 144A) debt issues of foreign firms. Our results show that the presence of QIBs enabled foreign firms, mainly those with high country and firm level risk profiles, raise higher capital at attractive rates in the Rule 144A debt market even during the crisis. Our evidence of increased funding role of 144A market for foreign debt during stress times is consistent with the flight of intermediation towards QIBs.
Keywords: international debt markets, non-bank 144A private debt, Yankee bonds, QIBs, financial crisis
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