Coupon Resets Versus Poison Puts

The Valuation of Event Risk Provisions in Corporate Debt

Authors

  • Joseph A. Fields Department of Finance, University of Connecticut, Storrs, CT 06269
  • David S. Kidwell School of Business, University of Minnesota, Minneapolis, MN 55455
  • Linda S. Klein Department of Finance, University of Connecticut, Storrs, CT 06269

DOI:

https://doi.org/10.1016/1057-0810(94)90019-1

Abstract

This paper examines the valuation of the two major types of event risk indenture provisions, poison puts and coupon resets, on the debt of industrial companies. In contrast with earlier work by Crabbe (1991), we find that protection provided by poison put type ofcovenants is not valued by investors. The inclusion of coupon reset provisions, however, lowers the yield spread of new issued industrial bonds by 32 basis points. The yields on bonds with low credit quality ratings are reduced by including coupon reset provisions in the bond indentures.

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Published

1994-12-30

How to Cite

Fields, J. A., Kidwell , D. S., & Klein, L. S. (1994). Coupon Resets Versus Poison Puts: The Valuation of Event Risk Provisions in Corporate Debt. Financial Services Review, 3(2), 143–156. https://doi.org/10.1016/1057-0810(94)90019-1

Issue

Vol. 3 No. 2 (1994): Financial Services Review

Section

New Original Submission

License

Copyright (c) 1994 JAI Press Inc.

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