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The term structure of credit spreads in project finance Supplementary material for this article can be found at http:||www.interscience.wiley.com|jpages|1076-9307|suppmat|ijfe.350.html

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  • Marco Sorge

    (The World Bank, USA)

  • Blaise Gadanecz

    (Bank for International Settlements, Switzerland)

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    Abstract

    This paper finds that the term structure of credit spreads in project finance is hump-shaped. This contrasts with other types of debt, where credit risk is shown instead to increase monotonically with maturity ceteris paribus. We emphasize a number of peculiar features of project finance structures that might underlie this finding, such as high leverage decreasing over time, long-term political risk guarantees and the sequential resolution of uncertainty along project advancement stages. Our result is particularly relevant given the importance of project finance as a source of long-term capital for infrastructure especially in developing countries and has implications for risk management in the framework of Basel II. Copyright © 2007 John Wiley & Sons, Ltd.

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    File URL: http://hdl.handle.net/10.1002/ijfe.350
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    Bibliographic Info

    Article provided by John Wiley & Sons, Ltd. in its journal International Journal of Finance & Economics.

    Volume (Year): 13 (2008)
    Issue (Month): 1 ()
    Pages: 68-81

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    Handle: RePEc:ijf:ijfiec:v:13:y:2008:i:1:p:68-81

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    Web page: http://www.interscience.wiley.com/jpages/1076-9307/

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