Analyzing the Impacts of Issuing Subordinated Debt

• Main Authors: Chang, Chih-Jui, 張之睿
• Other Authors: Dai, Tian-Shyr
• Format: Others
• Language: zh-TW
• Published: 2014
• Online Access: http://ndltd.ncl.edu.tw/handle/29822538600750618548

碩士 === 國立交通大學 === 財務金融研究所 === 102 === Subordinated debt is a debt that ranks below other debts with regard to claims on assets or earnings and it is widely used by financial institutions and industrial companies. In this paper, under the condition that the firm has issued one senior bond, I analysis various scenarios where the firm raise funds by subordinated debt with different funding strategies, inclusive of issuing subordinated bond, issuing subordinated gold-link bond, issuing subordinated debt before shorting gold-link forward, issuing subordinated debt after shorting gold-link forward, issuing subordinated reverse-exchangeable bond, and subordinated reverse-convertible bond. I evaluate the values of claim holders in different scenarios using the structural credit risk model pioneered by Merton (1974) and discuss the issues of the optimal capital structure, debt capacity, credit enhancement effect, asset substitution problem and claim dilution problem. Among the funding strategies mentioned in the beginning, subordinated gold-link bond outperform others concerning debt capacity and optimal firm leverage value, when the asset value of a firm and the price of gold are highly correlated. Furthermore, if a company issues subordinated gold-link bond, the problem of claim dilution would not take place and the wealth transfer between equity and bond holders is less likely to happen.