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Collateral pricing

Author

Listed:
  • Benmelech, Efraim
  • Bergman, Nittai K.

Abstract

We examine how collateral affects the cost of debt capital. Using a novel data set of secured debt issued by U.S. airlines, we construct industry-specific measures of collateral redeployability. We show that debt tranches that are secured by more redeployable collateral exhibit lower credit spreads, higher credit ratings, and higher loan-to-value ratios--an effect which our estimates show to be economically sizeable. Our results suggest that the ability to pledge collateral, and in particular redeployable collateral, lowers the cost of external financing and increases debt capacity.

Suggested Citation

  • Benmelech, Efraim & Bergman, Nittai K., 2009. "Collateral pricing," Journal of Financial Economics, Elsevier, vol. 91(3), pages 339-360, March.
    • Handle: RePEc:eee:jfinec:v:91:y:2009:i:3:p:339-360
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    More about this item

    Keywords

    Collateral Redeployability Liquidation Collateralized debt obligations Airlines;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation

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