The CDS market reaction to loan renegotiation announcements
Silaghi, Florina (Universitat Autònoma de Barcelona.)
Martín-Oliver, Alfredo (Universitat de les Illes Balears)
Sewaid, Ahmed (NSPER Institute of Education and Research, Sao Paulo, Brasil)

Date:	2022
Description:	39 pàg.
Abstract:	This paper investigates the impact of loan renegotiations on firms' credit risk using the CDS market as a measure of credit risk. Using a sample of public US firms for 2010-2017, we document a significant decrease in CDS spreads and returns that we interpret as evidence of a certification effect. The finding suggests that the loan renegotiations are on average beneficial for the firm. The strongest reactions are for material amendments such as line of credit amount or tranche amount. Additionally, we find negative stock market returns, although barely statistically significant. Moreover, we identify an anticipation effect of up to 30 days before the announcement date on the CDS market, possibly due to informed trading by CDS banks of their speculative-rated borrowers' CDS contracts. Finally, we show that firm-specific CDS returns lead idiosyncratic stock returns, especially around the announcement date and for speculative-rated firms.
Grants:	Ministerio de Economía y Competitividad PID2020-115982RB-C21 Ministerio de Ciencia e Innovación 2017SGR 1036 Agència de Gestió d'Ajuts Universitaris i de Recerca 2017 / SGR-1036
Rights:	Aquest document està subjecte a una llicència d'ús Creative Commons. Es permet la reproducció total o parcial, la distribució, i la comunicació pública de l'obra, sempre que no sigui amb finalitats comercials, i sempre que es reconegui l'autoria de l'obra original. No es permet la creació d'obres derivades.
Language:	Anglès
Document:	Article ; recerca ; Versió acceptada per publicar
Subject:	Bank loans ; Credit default swaps ; Event studies ; Renegotiation
Published in:	Journal of banking and finance, Vol. 138 (2022) , p. 106431, ISSN 0378-4266

DOI: 10.1016/j.jbankfin.2022.106431

Available from: 2025-12-31 Postprint

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