Corporate Bond Market

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Corporate Bond Market

• Gang Shyy
• Department of Finance
• National Central U
• April 18, 2001

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Debt Holder vs. Equity Holder

• Debt Holder
• No Upside Return
• Downside Risk
• Low Volatility
• High Asset Collaterals
• (Low Leverage)

• Equity Holder
• All Upside Return
• Default Protection
• High Volatility
• High Leverage

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Taiwan Corp Bond Market

• Few Companies with Investment Grades
• Weak Credit Pricing Infrastructure
• Poor Corporate Governance
• No Securitization Vehicles
• Limited Credit Enhancement Mechanisms

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Corp Bond Covenants

• Limitation on Secured Indebtedness
• - We have agreed that we will not, and we will
  not permit any of our Restricted Subsidiaries to,
  create, assume, incur or guarantee any Secured
  Indebtedness unless we secure the notes equally
  and ratably with (or prior to) such Secured
  Indebtedness.
• Limitation on Sale and Leaseback Transactions
• Consolidation, Merger or Sale

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CB Asset Swap

• Competing Products Against Bank Loans
• Credit Linked Instruments
• More Efficient Credit Pricing

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High Yield Credit Market

• Default Risk vs. High Yield
• Liquidity and Market Maker
• Exit Mechanisms
• Surveillance Structure
• Institutional Investors Market

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Financial Architecture

• Professional Intermediates
• Transparent Corporate Governance
• Sophisticated Institutional Investors