Tilburg University On the pricing, wealth effects and return of private market debt Böni, Pascal DOI: 10.26116/center-lis-1936 Publication date: 2019 Document Version Publisher's PDF, also known as Version of record Link to publication in Tilburg University Research Portal Citation for published version (APA): Böni, P. (2019). On the pricing, wealth effects and return of private market debt. 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Download date: 03. okt. 2021 ON THE PRICING, WEALTH EFFECTS AND RETURN OF PRIVATE MARKET DEBT PASCAL PATRIK BÖNI _________________________________________________________________________ ON THE PRICING, WEALTH EFFECTS AND RETURN OF PRIVATE MARKET DEBT PROEFSCHRIFT ter verkrijging van de graad van doctor aan Tilburg University op gezag van de rector magnificus, prof. dr. K. Sijtsma, in het openbaar te verdedigen ten overstaan van een door het college voor promoties aangewezen commissie in de Portrettenzaal van de Universiteit op vrijdag 6 december 2019 om 10.00 uur door PASCAL PATRIK BÖNI geboren op 2 oktober 1967 te Basel, Zwitserland. Promotores: Prof. dr. P.P.M. Joos Prof. dr. F.A. de Roon Promotiecommissie: Prof. dr. J.J.A.G. Driessen Prof. dr. S. Manigart Prof. dr. P.G.J. Rosenboom Dr. A. Verriest i ON THE PRICING, WEALTH EFFECTS AND RETURN OF PRIVATE MARKET DEBT Acknowledgements While bearing my name as author, this PhD thesis would not exist without the generosity of a large number of people. First of all, this thesis owes much to my collaboration with various clients and colleagues as well as professors of the Universities of Rochester (USA) and Berne (Switzerland). The latter importantly affected my thinking about the world and the major concepts of modern theory of (corporate) finance, from which many concepts in this PhD thesis indeed borrow. Second, I am grateful for the competent, efficient and always very helpful support of Christel Donné from TIAS, the business school of Tilburg University. Motivation is crucial to succeed in educational matters. Keeping my motivation high, you always provided mission critical support in any matters related to the planning, organization and execution of my research activities. Your impressive professionalism and efficiency was a valuable and important help in surmounting all the challenges related to a PhD program at Tilburg University. Christel, you were a rich and reliable source of support throughout my studies from the first to the last day. Thank you! Next, I want to express my thanks to a number of personalities from which I benefited substantially. Chris de Neubourg, Tim de Leeuw and Herbert Hamers from Tilburg University as well as Igor Loncarski from the University of Ljubljana were generous with their time in reading and commenting the first drafts of my research proposal and papers or in teaching PhD courses. Your insights related to research philosophy and epistemology, statistics, academic writing as well as your feedbacks were always helpful to me. You provided room for substantive conversation and extended conversational exchanges in a way that built and improved my understanding of key research topics. Fourth, special thanks go the members of the PhD committee (Promotiecommissie), professors Joost Driessen from Tilburg School of Economics and Management, Tilburg University, Sophie Manigart, from Vlerick Business School as well as Ghent University, Peter Roosenboom, from Rotterdam School of Management, Erasmus University (RSM), and Arnt Verriest from EDHEC Business School. You evaluated the manuscript of my PhD thesis in much detail and challenged my work during the oral pre-defense. Your constructive criticism led to some extra analyses, adjustments and thesis extensions. I am convinced that your contributions have borne fruit and enhanced the quality of the final PhD thesis presented hereafter. Equally important, the challenging exchange with you during the pre-defense and the critical engagement with your ii ACKNOWLEDGEMENTS _________________________________________________________________________ suggestions thereafter provided a major landmark on my PhD journey. They allowed me to recall what learning and research is all about: an endless life long process. Immensely important was the enduring support I was granted from my supervisors (Promotores) Philip Joos and Frans de Roon, both from Tilburg School of Economics and Management (TiSEM) and TIAS School for Business and Society at Tilburg University. You invested a considerable amount of time and effort and kept good spirits despite long hours, tight schedules, and my incessant changes and requests. I benefited a lot from your experience, professionalism and continuous encouragement, which was invaluable until the very last day of our perennial co-operation. I was particularly impressed to experience your patience and exemplary modesty and will always cherish the memory of our innumerable dialogues over the years of our collaboration. Much indebted to your continuous support, from which I greatly benefited, I hope we shall have the opportunity to conduct research and / or co-operate also in the near and distant future. I feel honored that you were willing to accept my invitation for supervision. May my PhD thesis be a modest tribute to your outstanding personalities. As for many others, you were not only a role model but also trusted mentors to me. Thank you Philip and Frans! Finally, to my children, Tamara and David: You provided much understanding, patience and love during the long period that was needed to bring my PhD studies to fruition. You were always a source of happiness and inspiration for me and so, maybe without knowing, supported me a lot in pursuing this PhD. "It does not matter how slowly you go as long as you do not stop." Confucius PASCAL PATRIK BÖNI DECEMBER 6, 2019 iii Contents ACKNOWLEDGEMENTS .............................................................................................................. I CHAPTER I: RESTRICTIVE COVENANTS AND THE PRICING OF PRIVATE AND PUBLIC PLACEMENT BONDS ........... 1 1 Introduction .............................................................................................................................. 2 2 Data, Variable Construction, and Summary Statistics .............................................................. 9 2.1 Data ....................................................................................................................................... 9 2.2 Variable Construction .......................................................................................................... 10 2.3 Summary Statistics .............................................................................................................. 15 3. The Choice for Private Placement Bonds versus Public ........................................................ 17 Placement Bonds ....................................................................................................................... 17 4. The Cross-Section of Excess Spreads of Private Placement Bonds ....................................... 23 versus Public Placement Bonds ................................................................................................. 23 4.1 Baseline regressions ............................................................................................................ 24 4.2 The role of covenants .......................................................................................................... 28 4.3 Discussion ............................................................................................................................ 32 5. Further Analysis and Robustness Tests ................................................................................. 34 5.1 Covenants and economic uncertainty ................................................................................. 34 5.2 Differences in the pricing of private versus public placement bonds ................................. 37 5.3 The pricing of private placement bonds during financial crises ......................................... 38 5.4 Out-of-sample test .............................................................................................................. 40 5.5 Robustness tests .................................................................................................................. 41 6. Conclusions ............................................................................................................................ 45 7. Tables ..................................................................................................................................... 48 9. Appendices ...........................................................................................................................