Author(s)Benmelech, Efraim; Bergman, Nittai
MetadataShow full item record
We examine how collateral affects the cost of debt capital. Using a novel data set of secured debt issued by U.S. airlines, we construct industry-specific measures of collateral redeployability. We show that debt tranches that are secured by more redeployable collateral exhibit lower credit spreads, higher credit ratings, and higher loan-to-value ratios—an effect which our estimates show to be economically sizeable. Our results suggest that the ability to pledge collateral, and in particular redeployable collateral, lowers the cost of external financing and increases debt capacity.
DepartmentSloan School of Management
Journal of Financial Economics
Benmelech, Efraim, and Nittai K. Bergman. “Collateral pricing.” Journal of Financial Economics 91.3 (2009): 339-360.
Author's final manuscript
collateral, redeployability, liquidation, collateralized debt obligations, airlines