Covenant Prices of US Corporate Bonds

71 Pages Posted: 20 Apr 2021 Last revised: 14 Feb 2023

See all articles by Lukas Handler

Lukas Handler

Vienna University of Economics and Business

Rainer Jankowitsch

WU (Vienna University of Economics and Business); Vienna Graduate School of Finance (VGSF)

Patrick Weiss

Reykjavik University

Date Written: February 13, 2023

Abstract

In this paper, we analyze the key drivers of bond covenant prices by employing a novel measurement approach based on secondary market data. We find that covenant prices vary significantly over time and are associated with market-wide credit risk, volatility, and macroeconomic variables. Apart from the time-series dynamics, there is also significant variation across bond and firm characteristics. In particular, covenant prices increase with the riskiness of bonds and are higher for firms that have more growth options, more tangible assets, and are smaller. Furthermore, we document a positive correlation between the prices of covenants and their subsequent inclusion rates.

Keywords: covenants, corporate bonds, debt pricing

JEL Classification: G32, G34

Suggested Citation

Handler, Lukas and Jankowitsch, Rainer and Weiss, Patrick, Covenant Prices of US Corporate Bonds (February 13, 2023). Available at SSRN: https://ssrn.com/abstract=3827385 or http://dx.doi.org/10.2139/ssrn.3827385

Lukas Handler

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

Rainer Jankowitsch

WU (Vienna University of Economics and Business) ( email )

Welthandelsplatz 1
Vienna, Vienna AT1020
Austria
+43 1 31 336 4340 (Phone)
+43 1 310 0580 (Fax)

Vienna Graduate School of Finance (VGSF) ( email )

Welthandelsplatz 1
Vienna, 1020
Austria

Patrick Weiss (Contact Author)

Reykjavik University ( email )

Menntavegur 1
Reykjavik, 102
Iceland

HOME PAGE: http://https://sites.google.com/view/patrick-weiss

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