U.S. domestic vs. eurodollar issuance of make-whole callable corporate bonds

This article examines how market participants value the attributes of Make-Whole Callable (MWC) bonds—focusing particularly on the yield to maturity at issuance and the impact of different issuance modes on that yield. MWC bonds have dominated the U.S. corporate bond market for several years. We conduct both standard multiple linear regressions and quantile regressions using a set of traditional yield determinants, along with dummy variables to distinguish between domestic 144A private placements, Eurodollar bonds, and domestic public bonds. We select 2,217 MWC bonds issued by U.S. nonfinancial firms between 1999 and 2016. Our results indicate that the issuance mode dummies are, on average, significant, that the dummy for domestic private placements is significant mainly on the last tercile of the conditional distribution of yields, whereas the dummy for Eurodollar bonds is significant across the first four quintiles. Regarding the determinants, we find that the influence of maturity declines across the conditional distribution, while the effects of total assets and the BAA-AAA spread index increase. In summary, relative to bonds issued in the U.S. domestic public market, MWC bonds issued in the Eurodollar bond market or privately placed in the domestic market provide additional compensation to investors. A potential explanation for the Eurodollar bond premium is that market participants may perceive the enforceability of the make-whole call provision to be limited.