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Secured Credit Spreads

Author

Listed:
  • Efraim Benmelech
  • Nitish Kumar
  • Raghuram Rajan

Abstract

Lenders are unwilling to accept lower credit spreads for secured debt relative to unsecured debt when a firm is healthy. However, they accept significantly lower credit spreads for secured debt when a firm’s credit quality deteriorates, the economy slows, or average credit spreads widen. This contingent valuation of collateral or security, coupled with the borrower perceiving a loss of operational and financial flexibility when issuing secured debt, may explain why firms issue secured debt on a contingent basis; they issue more when their credit quality deteriorates, the economy slows, and average credit spreads widen.

Suggested Citation

  • Efraim Benmelech & Nitish Kumar & Raghuram Rajan, 2020. "Secured Credit Spreads," NBER Working Papers 26799, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:26799
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    References listed on IDEAS

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    Cited by:

    1. Efraim Benmelech & Nitish Kumar & Raghuram Rajan, 2020. "The Decline of Secured Debt," NBER Working Papers 26637, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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