Defaults of Original Issue High-Yield Convertible Bonds

Authors

  • ERIC S. ROSENGREN

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    • Federal Reserve Bank of Boston. The author would like to thank Robert Chicoski, Jessica Laxman, Adam Rosen, and Karen Trenholme for research assistance. Helpful comments were received from Dick Kopcke, Joe Peek, Geoffrey Tootell, René Stulz, and an anonymous referee. The views expressed in this paper are those of the author and do not necessarily reflect positions of the Federal Reserve Bank of Boston or the Federal Reserve System.


ABSTRACT

Recent studies using aging analysis have found high rates of default for rated, nonconvertible high-yield bonds. This paper examines the remainder of the market and concludes that rated and nonrated convertible high-yield bonds had significantly lower default rates. It also provides some evidence that nonrated, nonconvertible securities may have lower default rates. Even after controlling for issue size and coupon rates in a logit model, these differences remain statistically significant.

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