The Impact of Rule 144a Debt Offerings Upon Bond Yields and Underwriter Fees

Financial Management, Vol. 31, No. 4, Winter 2002

Posted: 26 Feb 2003

See all articles by Miles Livingston

Miles Livingston

University of Florida - Department of Finance, Insurance and Real Estate

Lei Zhou

Northern Illinois University - Department of Finance

Abstract

Securities issued under Rule 144A do not have to file a public registration statement with the Securities and Exchange Commission, but can be sold only to qualified financial institutions. This paper examines industrial and utility bonds issued under Rule 144A. Rule 144A issues are found to have higher yields than publicly issued bonds after adjusting for risk. Yield premiums are higher if the issuer does not file periodic financial statements with the SEC. The yield premiums of Rule 144A issues may be due to lower liquidity, information uncertainty, and weaker legal protection for investors. Bonds issued under Rule 144A may have registration rights, which require the issuer to exchange the bonds for public bonds within a stated period, or pay higher yields. While high-yield bonds usually have registration rights, we find that the majority of investment-grade bonds do not. Registration rights have a greater impact on yields for high-yield than for investment-grade bonds. Underwriter fees for Rule 144A issues are not significantly different from underwriter fees for publicly issued bonds.

Suggested Citation

Livingston, Miles B. and Zhou, Lei, The Impact of Rule 144a Debt Offerings Upon Bond Yields and Underwriter Fees. Financial Management, Vol. 31, No. 4, Winter 2002, Available at SSRN: https://ssrn.com/abstract=359622

Miles B. Livingston (Contact Author)

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
Gainsville, FL 32611-7168
United States
352-392-4316 (Phone)
352-392-0301 (Fax)

Lei Zhou

Northern Illinois University - Department of Finance ( email )

Wirtz Hall
DeKalb, IL 60115
United States
815-753-1115 (Phone)
815-753-0504 (Fax)

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