Determinants of Bond Tender Offer Premiums and the Percentage Tendered

Abstract

We analyze a large sample of recent US corporate bond tender offers to understand what affects tender premiums as well as the percentage of bonds tendered. For the average (median) tender offer, the tender price is 4.75 (3.40) percent greater than the pre-tender market price while the percentage of bonds tendered is 82.3 (94.6) percent. Premiums offered by firms are greater when the firm is simultaneously soliciting consents to amend restrictive covenants and when the bond has a greater number of restrictive covenants. Premiums are also greater when risk-free yields are low and the yield curve is flatter - conditions where a firm might want to lock in favorable long-term rates by issuing new debt and retiring old debt. Bondholders respond to higher tender premiums by tendering a greater percentage of their bonds - a one percent increase in tender premium increases the tendering rate by as much as 10%. Bondholders also tender a greater percentage of bonds possessing less desirable characteristics such as a short remaining maturity or bonds that are simultaneously undergoing consent solicitations. Finally, we find that tender offers are easier to complete when bond ownership concentration is greater.

Keywords: Debt, Bonds, Tender Offer, Repurchase, Restructure

JEL Classification: G32, G34