23/08/2007

M&A Event Risk of Corporate Bonds

Hiroshi Tsuda 

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M&A Event Risk of Corporate Bonds

As M&A activity intensifies in Japan, the “M&A event risk” of corporate bonds can emerge in three ways: (1) M&A activity increases the credit risk of bond issuers, causing bond prices to decline; (2) in LBOs, participating financial institutions receive a higher priority for payment in the event of default than bondholders; and (3) takeover defenses put the interests of equity investors ahead of bond investors.

Hiroshi Tsuda

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