The Emerging Project Bond Market : Covenant Provisions and Credit Spreads
The emergence in the 1990s of a nascent project bond market to fund long-term infrastructure projects in developing countries merits attention. The authors compile detailed information on a sample of 105 bonds issued between January 1993 and March...
Main Authors: | , |
---|---|
Format: | Policy Research Working Paper |
Language: | English en_US |
Published: |
World Bank, Washington, DC
2014
|
Subjects: | |
Online Access: | http://documents.worldbank.org/curated/en/2003/07/2475061/emerging-project-bond-market-covenant-provisions-credit-spreads http://hdl.handle.net/10986/18145 |
Summary: | The emergence in the 1990s of a nascent
project bond market to fund long-term infrastructure
projects in developing countries merits attention. The
authors compile detailed information on a sample of 105
bonds issued between January 1993 and March 2002 for
financing infrastructure projects in developing countries,
document their contractual covenants, and analyze their
pricing determinants. They find that on average, project
bonds are issued at approximately 300 basis points above
U.S. Treasury securities, have a surprisingly high issue
size of US$278 million, a maturity of slightly under 12
years, and are rated slightly below investment grade. In
terms of geographic origin, projects in Asia and Latin
America have issued more bonds than those located in other
regions. Much of the recent work relating to the role of
contractual covenants to the determination of bond prices
has focused on the U.S. corporate bond market with its
unique bankruptcy code - Chapter 11 - and well developed
legal framework, recognizing the bond contract as the sole
instrument of defining the rights and duties of various
parties. In circumstances in which the underpinning legal
and institutional frameworks governing contract formation
and enforcement are not well developed, the link between
bond pricing and legal framework becomes important. This
finding is confirmed by the authors' econometric
analysis of project bond pricing model. So, investors take
into account the quality of the host country's legal
framework and reward projects located in countries that
adhere to the rule of law with tighter credit spreads and
lower funding costs. |
---|