Ten percent of the investment-grade industrial bonds that were associated with major capital restructurings between 1983 and 1988 had already been downgraded to speculative grade as of August 1989. In response to these downgrades and the corresponding wealth losses for bondholders, over 40 percent of recently issued investment-grade industrial bonds are protected from this type of "event risk" by virtue of specialized covenants. These event-risk covenants may have initially reduced interest costs for borrowers by roughly 20 to 30 basis points. However, the magnitude of the effect appears to have declined along with the general decline in corporate restructurings. Copyright 1991 by American Finance Association.
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Article provided by American Finance Association in its journal Journal of Finance.
Volume (Year): 46 (1991) Issue (Month): 2 (June) Pages: 689-706 Download reference. The following formats are available: HTML,
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