题 目：Does CDS Trading Affect Debt Contracting? Evidence from Loan and Bond Covenants

报告人：Chenyu Shan, the University of Hong Kong

时 间：2013年1月17日（周四）10:00-11:30

地 点：成人直播新楼217室

Abstract: Credit default swaps (CDS) are derivatives on debt securities and have become the most active instrument for credit trading. CDS potentially change the credit market environment as lenders can use CDS to their advantage. Using a comprehensive sample of CDS trading and private credit agreements from 1994 to 2009, I show that reference firms' debt covenants are loosened after CDS start trading. The loosening is more pronounced when more CDS contracts reference the borrowers' debt and when lenders have larger positions in credit derivatives. The results are robust to controlling for the endogeneity of CDS trading. Further analysis sugges ts a potential mechanism for this finding that CDS help alleviate creditors' concern over conflicts of interest with shareholders. Given that covenants are frequently renegotiated during the life of the loan and that renegotiation is costly to both lenders and borrowers, my findings of covenant loosening are consistent with the view that CDS help mitigate debt contracting friction.