Effects of due-on-sale clauses in industrial debt

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Effects of due-on-sale clauses in industrial debt
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Thesis (Ph. D.)--University of Florida, 1991.
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Includes bibliographical references (leaves 80-81).
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by Hugh M. Pratt.
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EFFECTS OF DUE-ON-SALE CLAUSES IN INDUSTRIAL DEBT


By

HUGH M. PRATT













A DISSERTATION PRESENTED TO THE GRADUATE SCHOOL
OF THE UNIVERSITY OF FLORIDA IN PARTIAL FULFILLMENT
OF THE REQUIREMENTS FOR THE DEGREE OF
DOCTOR OF PHILOSOPHY

UNIVERSITY OF FLORIDA


1991















ACKNOWLEDGMENTS

There are many people who have given me tremendous help

in completing this dissertation, but I want to specifically

thank my committee, Miles Livingston, Sanford Berg, W. Andrew

McCollough, and Michael Ryngaert, for their infinite patience

and generous assistance. I also want to thank David T. Brown

and Steven R. Cox for their support and encouragement since

the beginning of my doctoral work.

This dissertation is dedicated to my grandfather, Julian

D. Miles. Through the best and worst of times, he has always

managed to give his family his greatest love and support.
















TABLE OF CONTENTS

page

ACKNOWLEDGMENTS..... ............ ........................ ii

LIST OF TABLES.......................................... v

ABSTRACT........................................... ..... vi

INTRODUCTION..... ....................................... 1

Description of the RJR/Nabisco Takeover Event.......... 1
Description of Bondholder Event Risk................... 2
Description of Poison Puts............................ 3
Description of Super Poison Puts....................... 3
Fraudulent Conveyance Laws............................ 5
Other Protective Covenants............................ 6
Objective of the Dissertation......................... 10

REVIEW OF LITERATURE.................................... 13

Value of Put Options................................... 13
Court Rulings Concerning Mortgage Due-on-Sale Clauses. 14
Relevant Research Concerning Protective Covenants..... 18

EMPIRICAL DESIGN........................................ 26

Overview of Testable Implications..................... 26
Data Sources.......................................... 27
Data Statistics........................................ 29
Regression Results...................................... 36
Event Study Results................................... 46
Pairwise Tests for Differences in Yields.............. 52

CONCLUSIONS................. ............................. 56

APPENDIX A MAIN DATA SET.............................. 60

APPENDIX B COMPARISON OF EVENT-RISK CLAUSES AND
PROTECTIVE COVENANTS...................... 66

APPENDIX C CORRELATION ANALYSIS....................... 68

APPENDIX D FREQUENCY OF CLAUSES ACROSS TIME............ 72


iii










APPENDIX E


APPENDIX F

APPENDIX G


APPENDIX H


REGRESSION RESULTS FOR DIFFERENT RATING
GROUPS. ....................................

YIELD SPREAD GRAPHS BY RATING GROUPS........

CROSSTABULATIONS AND CORRELATIONS OF VARIOUS
PROTECTIVE COVENANTS......................

CROSSTABULATIONS OF EVENT-RISK CLAUSES AND
RELEVANT CHARACTERISTICS..................


REFERENCES....... .................................... ...

BIOGRAPHICAL SKETCH.......................................
















LIST OF TABLES


Table Paqe

3-1 COMMON TRIGGER MECHANISMS..................... 30

3-2 FREQUENCY OF EVENT-RISK CLAUSE TRIGGERS
WITHIN EVENT-RISK CLAUSE GROUPS........... 31

3-3 FREQUENCY OF PROTECTIVE COVENANTS WITHIN
EVENT-RISK CLAUSE GROUPS.................. 33

3-4 FREQUENCY OF EVENT-RISK CLAUSES AND YIELD
SPREADS IN DIFFERENT RATING GROUPS........ 37

3-5 YIELD SPREAD REGRESSION MODEL................. 39

3-6 YIELD SPREAD REGRESSION RESULTS............... 40

3-7 YIELD SPREAD REGRESSION RESULTS WITH
SPECULATIVE GRADE DEC ISSUES REMOVED...... 43

3-8 YIELD SPREAD REGRESSION RESULTS WITH
SPECULATIVE GRADE DEC ISSUES REMOVED AND
WITH NO RATINGS VARIABLES................. 45

3-9 YIELD SPREAD REGRESSION RESULTS FOR THE A
RATING GROUP............................... 47

3-10 DEC EVENT STUDY RESULTS...................... 51

3-11 CCC EVENT STUDY RESULTS....................... 53

3-12 PAIRWISE COMPARISONS OF DEBT WITH AND
WITHOUT A DUE-ON-SALE CLAUSE ISSUED BY
THE SAME FIRM.......... ........... ......... 54















Abstract of Dissertation Presented to the Graduate School
of the University of Florida in Partial Fulfillment of the
Requirements for the Degree of Doctor of Philosophy

EFFECTS OF DUE-ON-SALE CLAUSES IN INDUSTRIAL DEBT

By

Hugh M. Pratt

August 1991

Chairperson: Miles B. Livingston
Major Department: Finance, Insurance, and Real Estate

This dissertation examines the increased usage of due-

on-sale clauses in industrial debt following the RJR/Nabisco

merger of 1988. The analysis includes measurement of the

effects of the RJR/Nabisco takeover on bond markets, the

impact of due-on-sale clauses on bond yields, and possible

motivations for the inclusion of due-on-sale clauses in

industrial debt. There are basically two types of due-on-sale

clauses. Designated event clauses are more easily triggered

by takeover related events than are change of control clauses.

Bonds with designated event clauses have significantly lower

yield spreads. However, when adjustment is made for bond

rating, the yield spread is not lower. Bonds with change of

control clauses do not have lower yield spreads. A stock

event study suggests that designated event clauses help to

entrench management. This evidence is consistent with due-on-

sale clauses being motivated, not by efforts to protect









bondholders and, therefore, reduce yield spreads, but to

entrench issuing firm management.


vii















CHAPTER 1
INTRODUCTION


Description of the RJR\Nabisco Takeover Event


On December 1, 1988, Kohlberg Kravis Roberts (KKR)

secured an agreement to acquire the stock and debt of

RJR/Nabisco (RJR). The firm was taken private by KKR when it

agreed to pay RJR shareholders a total face value of $25.07

billion for the RJR stock. Financing for this takeover came

from foreign and domestic bank loans and junk bonds. The high

debt ratio of the new firm increased the default risk of the

firm, decreasing the value of the old RJR debt.

Prior to the RJR takeover, firms the size of RJR were

thought to be immune from takeovers and event risk. However,

in response to KKR's takeover of RJR, the Wall Street Journal

reported that the markets for industrial bonds began pricing

industrial bonds of even large firms at higher yields to

compensate bondholders for the increased event risks of

potential mergers. For example, the yield spread' on a Kodak

bond, maturing in 2005, issued on October 21, 1988, went from



1in this paper, yield spreads are calculated by
subtracting the yield of a Treasury security of approximately
equal maturity from the yield of the security being analyzed.
This is done to remove the effects of maturity and changes in
the level of interest rates over time.

1











1.05% to 1.25% after the announcement of the RJR managerial

buyout attempt.2 Further, new bond issues fell from an

average weekly volume of $555 million to $255 million after

the RJR takeover. This effect can be seen in Figures F-l and

F-2 of Appendix F. For high-rated debt, these figures show

that new issues were not floated for several weeks following

the initial RJR buyout offer. Issuers began searching for

lower cost methods for raising capital, such as the private

placement market.3


Description of Bondholder Event Risk


A leveraged corporate takeover requires many people and

organizations to assume various levels of risk in order for

the takeover to proceed successfully. For example,

shareholders of the target firm bear the risk that they are

not being adequately compensated for the present value of

future earnings of the target firm's assets. Shareholders of

the bidding firm must bear the risk that the revenues of their

new acquisition will not cover the costs of financing the

acquisition.

Bondholders of the target firm face a unique risk

scenario. Upon purchasing the target firm's debt, bondholders

have some expectation about the firm's risk given the


2Wall Street Journal, "Shock Still Clouds Blue-Chip
Corporate Bond Market", March 22, 1989, page Cl.

3Wall Street Journal, "Private Placement Market Attracts
More Business Than It Can Handle", February 10, 1989, page Cl.









3

information currently available for the firm. If the firm

unexpectedly issues more debt, the likelihood of repayment

decreases. Since many takeovers result in increased leverage

ratios, the old bondholders of the target firm bear

substantially more risk of default. This increased riskiness

causes the value of the old debt to decrease with a loss of

wealth to old bondholders.


Description of Poison Puts


In 1986, "poison put" covenants emerged to reduce

investor exposure to event risk. These covenants authorized

bondholders to put the debt back to the issuing firm, at or

slightly above par value, in the event of a hostile takeover.

These put options were exercisable only during hostile

takeovers, and thus provided no protection to the bondholders

in the event of a friendly takeover financed by new debt.


Description of Super Poison Puts


To circumvent the friendly takeover loophole, "super

poison puts" or "due-on-sale clauses" (DSCs) were developed.

A DSC stipulates that when a firm undergoes a change of

control (a predetermined level of ownership in the firm is

sold) and/or some other designated event, any outstanding debt

of the target firm that contains a DSC immediately becomes

puttable back to the firm. In a takeover situation, a DSC is

designed to work either by forcing the bidding firm to repay









4

the principal of its acquired debt or by forcing the bidder to

repurchase existing debt in the market before the takeover.

In either event, the bondholders' claims against the new firm

management are satisfied; the bondholders are assured the

return of principal.

The DSC may offer better protection against event risk

than other protective covenants because of the difficulty of

applying the restrictions of those covenants to the new firm

formed by a takeover. It is not clear that a debt restriction

on the old target firm could be enforced on the surviving

posttakeover firm. The DSC avoids this problem by forcing

elimination of event risk when the takeover is completed, and

its activation is not based on the composition of the

posttakeover firm.

In a world where some investors are better informed

about event risk, a DSC increases a bond's value and

marketability. Informed investors have information about the

event risk of the issuing firm which enables them to properly

value a debt issue. Uninformed investors do not have this

information. Because of this disadvantage, uninformed

investors may not purchase corporate bonds. Since the DSC

reduces the advantage of informed investors over uninformed

investors by reducing the issue's probability of default, the

uninformed investors will be more likely to invest in the

issue. Therefore, the DSC should improve the value and

marketability of corporate bonds.









5

An effective DSC also produces some interesting wealth

transfers. In a takeover, without a DSC, event risk would

cause a transfer of wealth from debt to bidder equity. The

bidder's larger debt load causes its equity to be more risky,

adding value to the equity. The DSC prevents this transfer.

Outside of a takeover situation, the DSC causes a transfer

from equity to debt via a reduced yield spread.


Fraudulent Conveyance Laws


If more effective alternatives for principal protection

other than the DSC exist, bondholders may consider the DSC to

be redundant security and will not price the DSC when pricing

the bond. One possible avenue of protection available to

bondholders is the concept of fraudulent conveyance.4

Fraudulent conveyance is the right of creditors of a target

firm to sue for losses resulting from a merger. Fraudulent

conveyance occurs if two conditions hold. First, the target

firm in a takeover must have received below market

compensation for the assets transferred to the bidder. This

happens when the funds provided by the bidder are passed

straight through the target firm to shareholders, making the

funds, in lieu of the transferred assets, unavailable to

bondholders for interest payments or return of principal.

Second, the target firm must become either insolvent or have



4Michel and Shaked (1990) provide an analysis of several
aspects of fraudulent conveyance laws.









6

unreasonably small capital as a result of the takeover. If

bondholders can prove that this insolvency was foreseeable,

and the first condition holds, then fraudulent conveyance has

occurred.

Fraudulent conveyance laws increase the security

available to debtholders in the event of insolvency resulting

from a takeover. The protection provided by fraudulent

conveyance laws may reduce or eliminate the need for DSCs.

These laws serve to put an upper bound on the value of DSCs

since they are pervasively applicable to all debt issues.

However, legal costs and the difficulty of successfully

proving fraudulent conveyance prevent these laws from

eliminating all costs borne by debtholders in a takeover

event.


Other Protective Covenants


Most bond indentures include many different clauses to

protect bondholders. The following discussion illustrates why

these clauses may not protect bondholders in a takeover event.

Thus, a DSC may uniquely protect bondholders from takeover

risk.

Most of the debt issues analyzed in this study contain

some form of one or more of the following debt covenants:

limitations on debt, restrictions on dividends, negative

pledge clause, limitations on mergers and consolidations,

and/or sale/leaseback restrictions. These restrictions and









7

their potential implications for event risk are discussed

below:

Limitations on debt. These clauses limit the ability of

a firm to issue additional debt after the capital structure of

the firm reaches a predetermined level of leverage.5

Typically, the clauses are triggered when the issuing firm's

consolidated long-term debt/equity ratio exceeds a value of

one. Since many takeovers are heavily financed with debt,

this restriction on the issuance of debt could potentially

prevent a takeover.

There are several ways to circumvent this protection.

First, if only senior debt is limited, then the issuer could

still issue subordinated debt, increasing the default risk of

the firm, and allowing an otherwise blocked takeover to

proceed. Second, a holding company could be formed by the

bidder to assume the acquired firm's debt in a takeover.

Without restrictions on cash flows from the holding company to

the parent company, the company could expropriate funds from

the target firm without invoking the debt limitation.

There may be other dangers to target firm bondholders

besides high leverage. If the takeover increases the

variability of earnings or a bidding firm with a low rate of

return takes over a target firm with a higher rate of return,

bondholders are exposed to increased risk. A clause


5For some issues, the restriction only applies to the
issuance of debt of equal or higher seniority to the debt
which includes the limitation clause.









8

restricting debt would not protect bondholders in this

takeover situation.

Restrictions on dividends. A dividend restriction

usually states that dividends cannot be paid or equity

repurchased unless sufficient net income is generated.

A dividend restriction can be circumvented if the target

firm is acquired by a holding company. This can be damaging

if the holding company is not restricted in the amount of cash

flows which can be transferred to the parent company.

Additionally, the restriction could harm bondholders in

restricting management's ability to defend against hostile

takeovers. Poison pill and other takeover defenses depend on

management's ability to pay large dividends to deplete the

target firm's assets and make it less attractive to a hostile

bidder.

Negative pledge clause. A negative pledge clause

provides that additional debt issues (usually bank debt) may

not have senior claims to the debt containing the clause. The

event-risk protection depends on the actions by banks to force

the sale of assets to maintain very demanding repayment

schedules by the issuer. The sale of these assets reduces the

default risk of banks while reducing security for the publicly

issued debt. Also, a negative pledge clause does not prevent

the issuing firm from offering subordinated debt.

Limitations on mergers and consolidations. These

restrictions prohibit mergers and consolidations except when









9

the surviving company assumes the debt of the target firm, if

there is no default on the debt immediately following the

takeover, and if the surviving company is U.S.-based. This

clause is weak in protecting against event risk because the

surviving company may be heavily leveraged, default usually

does not occur until significantly after the takeover date,

and almost all of the surviving companies are American.

Sale/leaseback restrictions. These restrictions prevent

the issuing company from selling assets and leasing them back

to the selling firm. These clauses do not substantially limit

event risk because they do not affect the incurrence of more

debt and do not significantly limit the debt/equity ratio.


In many cases, the above clauses, in combination with

each other, can provide substantial protection to bondholders.

For example, the impact of limitations on debt can be

strengthened if the clause is also paired with limitations on

the sale of assets and limitations on the repurchase of stock.

In some cases, DSCs are triggered by the same events

which are restricted by the preceding clauses. This suggests

that the DSC may serve as nothing more than "window dressing".

However, a possible advantage of the DSC over a combination of

the preceding clauses is that it is designed to be triggered

by situations which typically accompany takeovers, such as

acquisitions of large blocks of stock or large cash

distributions to stockholders, while a takeover may not be

thwarted by limitations on debt or dividends. The DSC also











gives management flexibility in its operation of the firm.

The DSC allows management to finance the firm with debt

without invoking a restrictive covenant. Only when debt is

used in a takeover is the DSC triggered to protect

bondholders.

Analysis of new issues in Moody's Bond Survey shows that

DSCs were rare before the RJR takeover. In the collected

sample, before the RJR takeover, none of the industrial bond

issues contained a DSC in April and May of 1988, and only 7%

contained a DSC in June 1988. Following the RJR takeover, DSC

debt became more popular: In the summer of 1989, 18% of the

issues contained a DSC in May, 50% in June, and 50% in July.

This trend continued through 1989.6


Objective of the Dissertation


In an efficient market, bonds with effective DSCs should

have lower yields. Several factors may reduce the value of

DSCs. First, the possibility exists that the trigger

thresholds of the DSCs may be too high for effective

activation, reducing the protection to bondholders. Thus the

DSCs may serve only as "window dressing" for the issues that

contain them, meaning that the clauses are included as a

marketing mechanism to allay investor fears of event risk.

Second, the attachment of a DSC to a debt issue may have no



6A more extensive table of new issues containing DSCs is
in Appendix F.









11

effect on the pricing of the issue if there are substitute

forms of bondholder protection (i.e. other protective

covenants and fraudulent conveyance laws). Third, the DSC

would be worthless to the debtholders of a firm which is not

facing any event risk. Finally, the DSC may have no impact on

yields if the market feels that the DSC will not survive a

legal challenge by the bidder in a takeover.

One possible motivation for inclusion of DSCs is to

impede a takeover. Since a bidder must pay off DSC debt which

is put back to the target as well as purchase controlling

equity in the target, the DSC would make a takeover

significantly more expensive. This higher cost of a takeover

could prevent completion of the takeover, resulting in

management entrenchment. If this is the case, then the stock

price of a firm which issues DSC debt should fall in response

to the issuance of the new debt to reflect the costs of the

management entrenchment.

This dissertation will investigate the market value of

the DSCs as well as other aspects and effects of the clauses.

Empirical results in this paper suggest that DSCs have no

significant effect on reducing yield spreads. Additionally,

a stock event study indicates that stocks of some firms which

issue DSC debt do suffer significantly reduced returns when

this debt is issued. Thus, while DSCs do not appear to be

reducing debt financing costs, they do appear to serve as









12

antitakeover maneuvers to entrench firm management and promote

expropriation of wealth from stockholders to management.

Chapter 2 of this dissertation is a review of the

literature relevant to the DSCs. Chapter 3 covers the

testable hypotheses and the empirical results of the tests of

these hypotheses. Chapter 4 offers conclusions on the basis

of the empirical tests.















CHAPTER 2
REVIEW OF LITERATURE


Value of Put Options


Put options allow bondholders to force the issuer to buy

back the debt, usually at or greater than par value. The

period of puttability is specified in the debt prospectus.

With DSCs, bondholders can put the bonds back to the issuer at

a specified price only upon the occurrence of some designated

eventss)' The main distinction between put options and DSCs

is that with a DSC, there is uncertainty about the date of a

designated event, making the debt puttable. Consequently, the

DSC option has a lower value than a regular put option with

otherwise identical characteristics. If a regular put has no

value to bondholders, then neither will a DSC.

Chatfield and Moyer (1986) investigate the value of put

options which may be exercised after a fixed date. Their data

come from March 1982 to August 1984, and are analyzed using

matched-pair analysis and by regressing the current yield of

a bond on several explanatory variables. They find that, on

average, a bond without a put option has an interest cost of

.891 percentage points higher than a similar bond with a put



1These are American options.

13









14

option. The result was significant at the 99% level. This

indicates that markets do perceive value in a put option and

are pricing that option. Given these results, one cannot rule

out the possibility that the DSC put option may also hold

value. The dissertation will expand on Chatfield and Moyer by

determining if a put option maintains value after the

assumption of a known period of exercise is dropped.


Court Rulings Concerning Mortgage DSCs


Because of the novelty of the DSCs in industrial debt,

there are no specific court cases involving the validity of

industrial DSCs. There are, however, some legal precedents in

mortgage DSCs. These cases are reviewed here because of the

economic similarity between the mortgage DSCs and the

industrial DSCs. The mortgage DSCs are included in loan

contracts on real assets rather than on financial assets. The

mortgage DSCs provide that upon the unauthorized sale of the

real property, the entire value of the loan becomes payable to

the lending institution, unless the lender and the new owner

of the property can agree to alternative arrangements.

Two cases are reviewed in this paper. First is the

August 1978 Wellenkamp v. Bank of America decision of the

California Supreme Court (582 P. 2d 970). In this case, the

plaintiff argued that enforcement of a DSC in a mortgage









15

contract resulted in undue restraint on alienation.2 In other

words, the owner of property was unfairly prohibited from

selling the property to a buyer who would then assume the

liability of the seller's loan contract on the same property.

Additionally, the plaintiff argued that if market interest

rates increased, and the lending institution demanded a higher

rate of interest from the buyer of the property, then it was

unfair to force the seller to lower the sale price of the

property to compensate the buyer for higher interest rates and

encourage the sale of the property.

The Court ruled that the DSC could not be enforced

unless the lender could show that enforcement of the contract

is reasonably necessary to protect the lender's security and

prevent increased risk of default. The greater the restraint

of alienation, then the greater the proof that is necessary to

show that the sale of the property results in an increase of

risk to the lender's position in the loan. Justifiable

enforcement requires that the cost of allowing the sale of the

property must outweigh the cost of enforcement. For example,

high market interest rates are insufficient justification for

enforcing the contract because the Court interpreted that this

would be more costly to the borrower. The court also held





ZAlienation is defined here to mean the separation of
property from its owner. For example, a property owner who
sells the property becomes alienated from the property after
the sale is completed.









16

that the buyer's equity position in the property was

sufficient security for the lender.

In the June 1982 Fidelity Federal Savings & Loan

Association et al v. De La Cuesta et al (458 U.S. Supreme

Court 141) decision, the U.S. Supreme Court overturned the

Wellenkamp decision as it applied to Federal institutions.

The Federal Home Loan Bank Board had ruled that DSCs must be

enforced for three reasons: 1) the stability of federal

institutions could be undermined if people who were unable to

maintain loan payments took over a liability without an

institution's prior research and approval, 2) elimination of

potent DSCs would reduce the amount of funds available for

future loans and thus make loans more expensive, and 3)

removal of the DSC would make it difficult for federal

institutions to sell their loans on the secondary market. The

U.S. Court ruled that any regulations mandated by the FHLBB

had the power of federal statutory law and thus overruled any

conflicting state laws. The U.S. Court also noted a FHLBB

task force finding on DSCs which found that as a result of the

California Supreme Court decision, restrictions on the

exercise of DSCs accounted for 40% of the total losses

suffered in 1981 by state-chartered associations in the State

of California; about $200 million in losses.

These rulings may be economically significant to

industrial debt DSCs. In comparing the mortgage DSC to the

industrial DSC, the borrower/seller is analogous to the









17

corporation, and the lender is analogous to the bondholders.

It is reasonable to expect, given the economic similarity of

the industrial DSCs to the mortgage DSCs, and assuming that

the industrial DSCs are enforceable under contract law, that

the industrial DSCs would also be declared enforceable if

brought up for review before the U.S. Supreme Court. For

example, if a corporation, which issued debt with a DSC, was

sold and the new owners opted to ignore the DSC and not pay

off the debt as provided in the DSC, bondholders would stand

a reasonably good chance of winning a lawsuit which forces the

new owner to satisfy the terms of the DSC (i.e. pay off the

DSC debt). If this was not the case, the new owners of the

firm would essentially inherit debt at a rate of interest that

may be below the current market rate of interest.

Additionally, and more importantly, the new owners may

issue additional debt, increasing the riskiness of the old

debt, thus decreasing the value of the old debt. The

potential for this loss of wealth is illustrated by the

example of the California lending institutions losses given

above. The California institutions were not allowed to

enforce their DSCs, and thus suffered losses due to the

increased riskiness of their mortgage portfolios. Another

implication is that new debt issuers would find that inclusion

of a DSC in a debt covenant would provide no substantial cost

reduction upon issuance of the debt because of the legal

impotency of the DSC.









18

For the above reasons, it is the position of this paper

that a legal challenge against DSCs in industrial debt would

fail upon judicial review. Therefore, bondholders should not

question whether or not they will receive protection from DSCs

due to uncertainty about the legality of DSCs.


Relevant Research Concerning Protective Covenants


Asquith and Wizman (1990). This paper investigates the

effects on bondholder wealth resulting from the announcement

of leveraged buyout (LBO) offers during the period of 1980 to

1988. They also measure the effect that restrictive debt

covenants, not including event-risk covenants, had on

protecting bondholders against negative wealth effects. For

214 debt issues where the issuing firm had received a takeover

bid, bondholders suffered a negative abnormal return of -2.0%.

This loss of wealth to bondholders during the period from 1980

to 1988 provided a strong incentive for the inclusion of DSCs

in new debt instruments.

Asquith and Wizman find that bondholders actually

experienced, on average, a positive abnormal return in cases

where the debt had strong protective covenants. The covenants

described by Asquith and Wizman as strong protection are 1)

net worth restrictions on the surviving firm following a

merger, 2) limitations on total funded debt, and 3)

securitization with either mortgages, liens, or defeasance.









19

The net worth and debt restrictions are primarily designed to

restrict the leverage ratio of the issuing firm.

Asquith and Wizman find that bonds with weak or no

leverage protection received negative abnormal returns

following a takeover. The covenants described as weak

protection are limitations on senior funded debt and

restrictions on dividends or special payouts to shareholders

from retained earnings. This evidence indicates that the

strong protective covenants are capable of mitigating LBO

event risk for bondholders.

This dissertation finds evidence that the designations

by Asquith and Wizman of the above covenants, especially the

strong covenants, may not be appropriate. First, the

covenants which essentially limit the leverage ratio of the

issuing firm would fail to protect bondholders in a takeover

which did not involve heavy leverage. In this situation,

bondholders could be exposed to the risk of lower or more

volatile cash flows resulting from the takeover. DSCs would

provide better event risk protection than the leverage ratio

covenants because the DSCs can be activated by more than just

an increase in the leverage ratio.

Second, securitization with mortgages and liens

typically only occurs with utilities. Therefore, this

securitization has little applicability to industrial LBOs.

Security by defeasance appears in both utility and industrial

debt. This dissertation will show that the defeasance









20

securitization is pervasive across industrial debt issues and

appears to provide no incremental event-risk protection to

bondholders.

Additionally, Asquith and Wizman appear to include both

utility and industrial firms in their sample set. To avoid

ambiguous results from simultaneously analyzing utility and

industrial debt, this dissertation only analyzes industrial

debt.

Many of the bonds found by Asquith and Wizman to earn

positive abnormal returns were called, at a premium, by the

issuing firm. Since these bonds also contained restrictive

covenants, there was an incentive to call that debt in order

to remove the constraints imposed on the issuing firm by the

covenants. For bonds that were being priced below the call

price, a call would have yielded positive abnormal returns,

even following a takeover event.

Asquith and Wizman also find two somewhat surprising

results involving bonds during the 1980s. First, even with

the increased takeover activity of the 1980s, they find that

bonds were being issued with fewer protective covenants during

the 1980s than before. A possible explanation of this

phenomenon is that the demand for all debt, including junk

debt used in takeovers, also increased during the 1980s,

reducing the need to market the new debt with protective

covenants. Second, Asquith and Wizman find that the losses to

bondholders from takeovers during the 1980s were only a small










21

fraction of the gains to stockholders. This suggests that

stockholders were benefitting from more than just

expropriation from bondholders.

Crabbe (1991). This paper estimates the wealth effects

to bondholders from the inclusion of event-risk covenants in

the bond indentures. To determine the effects from a bond

downgrading, Crabbe analyzes 56 bonds which were issued from

1983 to 1988. All of these bonds underwent a rating downgrade

from investment grade to speculative grade. He finds that

these bondholders, on average, suffered abnormal returns of

-7.77%.

Next, Crabbe analyzes the effect of event-risk clauses

on bondholder wealth using a sample of 72 bonds, 29 of which

included a DSC, during the period of November 1988 to December

1989. Crabbe finds that these clauses are basically triggered

by two types of events. The first trigger is a major change

in the firm's capital structure. The second trigger is a

downgrading from an investment grade risk rating to a

speculative rating. Crabbe reports that some clauses also

have provisions for takeovers resulting in mergers into less

creditworthy entities, major changes in the firm's board of

directors, large share purchases by outside parties, large

share repurchases by the issuing firm, and large cash

dividends.









22

Crabbe finds several interesting results. First, larger

firms, usually associated with lower event risk due to their

size, tend not to use event-risk clauses in their bonds.

Second, in regression results using yield spread as the

dependent variable, he finds that the presence of an event-

risk clause significantly reduces yield spread. Crabbe

interprets this result to mean that the event-risk clauses are

causing the reduction in yield spread. This dissertation will

show that interpretation of the regression results is

difficult without some detail about the structure of the

individual event-risk clauses. This dissertation will also

show that event-risk clauses do not induce a reduction in

yield spread for high grade debt issues.

In another similar regression, Crabbe also finds that

the Standard & Poor's ratings of the quality of event-risk

protection (E-rating) in debt significantly reduce yield

spread. The presence of the ratings seems to reduce yield

spread, regardless of the level of the ratings. Tests show

that the hypothesis that the different ratings have the same

effect on yield spread could not be rejected. This result

lends some doubt as to the quality of these ratings. If the

event risk ratings truly are communicating credible

information about the differential quality of event-risk

protection, then these ratings should have significantly

different effects upon yield spread.









23

Third, Crabbe finds that event-risk clauses continued to

be valued as takeover activity declined in early 1990, but

this valuation was reduced from that of the late 1980s.

This dissertation expands on the Crabbe paper in two

ways. First, this dissertation finds that firms which issue

high rated debt and firms which issue low rated debt use

different types of event-risk clauses in their new debt

issues. The clauses of high rated debt tend to be more easily

triggered during a takeover than the clauses of low rated

debt. Therefore, bondholders of high rated debt are more

likely to receive protection from event-risk. Second, the

dissertation includes a substantially larger data set with 288

new debt issues. Of these issues, 54 contain an event-risk

clause. These data include pre-RJR takeover bond issues

indicating the extent to which the RJR takeover affected debt

markets. Third, the dissertation analyzes, in detail, the

characteristics of event-risk clause trigger provisions and

other protective covenants which are often included in new

debt issues.

Lehn and Poulsen (1991). This paper examines the

frequency of usage of various protective covenants in

industrial and utility bonds to mitigate event risk. Among

327 bonds issued during 1989, 32.1% of the bonds contained an

event-risk clause. Only three of 101 issuing firms in 1986

issued debt which contained some form of event-risk clause.

Therefore, bond issuers have been slow to incorporate event-









24

risk clauses given the high takeover activity of the 1980s.

This probably reflects that bondholders did not perceive a

high degree of event risk during the early 1980s.

Of securities issued by takeover targets, 50.5%

contained event-risk covenants. Lehn and Poulsen used a proxy

measure for the probability of takeover to determine that, of

firms with a high probability of takeover, 58.5% had an event-

risk clause. The presence of the clause may itself be a

credible indicator of the probability of takeover.

Lehn and Poulsen find that event-risk clauses often

appear in bond indentures simultaneously with restrictions on

dividends and additional debt. For issues with dividend

restrictions, 62.7% also contained an event-risk clause. For

issues with debt restrictions, 56.6% contained an event-risk

clause. This suggests that the event-risk clauses are not

substituting for these restrictions. This dissertation will

offer evidence to the contrary. Specifically, the results

reported in this dissertation show that the more effective

event-risk clauses tend not to occur simultaneously with debt

and dividend restrictions. While the reason for this

discrepancy is not clear, it may exist because Lehn and

Poulsen obtain their data from SEC registrations, while the

data for this dissertation come from the debt prospectuses.

Since some details about individual debt issues change

following registration with the SEC, these prospectuses, in










25

many cases, contain later information than the SEC

registrations.

As with Crabbe, this dissertation will expand on Lehn

and Poulsen by dividing event-risk clauses into two distinct

groups.
















CHAPTER 3
EMPIRICAL DESIGN


Overview of Testable Implications


The following is an empirical analysis of the above

topics. This section discusses the tests that will be

performed and the hypothesized results. First, the types of

DSC triggers will be examined. Some DSCs are more easily

triggered than others. The "easy" trigger mechanisms ("easy"

meaning easy to activate) should cause a larger reduction in

the yield spread of the associated debt than a "difficult"

trigger due to the greater likelihood that the easy clause

will be triggered to protect bondholders. Additionally, debt

clauses other than event-risk clauses will be examined to

investigate any trends in the usage of the other protective

clauses.

Second, yield spreads for industrial DSC bonds will be

regressed against the major types of bond covenants and

characteristics to determine whether or not DSCs have an

impact on yield spreads. This test is similar to that

reported by Crabbe.

Third, an event study is conducted to explore whether

stockholders of firms which issue DSC debt are likely to









27

suffer large reductions in wealth as a result of the new debt

relative to stockholders of firms which issue non-DEC debt.

Finally, yield spreads of issues from firms which had

one debt issue with a DSC and one without will be tested for

significant differences in the yield spreads of the two

issues. A significant difference across firms would indicate

that the DSCs are reducing yield spread. An insignificant

difference would indicate that bondholders are not perceiving

protection from the DSCs.

This dissertation will examine all DSCs for the period

from six months before the RJR takeover to the spring of 1990.

These results are reported below.


Data Sources


The sample of new bond issues from April 1988 to March

1990 is obtained from Moody's Bond Survey. Only industrial

debt is selected because DSCs appear primarily in industrial

debt and because event risk is highest for industrial firms.

Issues for which all required is not available in Moody's Bond

Survey are excluded from the data set. The debt issues

selected are listed in Appendix A. The following data are

collected at the issue date for each issue: yield to









28

maturity, time to maturity, rating,' face value of the issue,

and issue date. Also, dummy variables are defined for

callability, presence of a change of control (CCC) put option,

presence of a "designated event" (DEC) put option, a straight

put option, presence of a sinking fund, shelf issue, and

whether the debt was issued before or after the announcement

of a takeover attempt of RJR by its management. The RJR dummy

variable expands on Crabbe by measuring the effect of the RJR

takeover on bond yield spreads.

DEC put options are those that are puttable upon a

decline in the risk rating and either change of control or

some other designated event. There are often several

designated events which can activate the put option. Most of

the DEC issues contain about five designated activating

events. The DEC trigger mechanisms are defined as "easy"

since they are relatively easy to activate.

A debt issue is defined to be a CCC issue if it contains

at least a change of control put option that is activated when

an individual, as specified in the prospectus, gains control

of 50% or more of the firm's stock voting rights. The CCC

covenants usually contain as many as four other triggering

events, but the "percentage of voting rights" event is the


1 Debt is investment grade if it is rated Baa3 or higher
under Moody's rating system. Below Baa3 is speculative grade.
Additionally, Moody's ratings take into account not only
default risk, but also event risk. Standard & Poor's ratings
do not account for event risk. Instead, S&P assigns a
separate event risk protection rating for a limited number of
issues.









29

most prominent in a takeover situation, and thus is

prominently used to distinguish between various clauses.

These trigger mechanisms are described as "difficult" because

they are difficult to activate. Table 3-1 below lists the

trigger mechanisms most often associated with CCCs and DECs.

Data on construction and characteristics of the

designated event and change of control clauses come from the

prospectuses of the various issues. These prospectuses are

obtained from underwriters, issuers, and Disclosure Inc.

The initial sample is purged of convertibles, reset

notes, discount notes, nonindustrial issues, and issues where

all required information is not available for the issue. The

final data set contains 288 observations. Summary statistics

for this data set are available in Appendix C.


Data Statistics


Prospectuses were obtained for 71 debt issues. Of the

71 issues, 50 contain some form of a DSC. The various

characteristics of the trigger mechanisms of the DSCs, as well

as the characteristics of other clauses which could effect

bondholder wealth in a takeover, are identified and

classified. These issues are listed and classified in

Appendix B. Event-risk clause groups and triggering events

are tabulated in Table 3-2 below.

Significant differences exist between the types of

trigger mechanisms in the DSCs and the ease by which the












TABLE 3-1
COMMON TRIGGER MECHANISMS


CCCs DECs

1. Transfer of assets 1. Transfer of assets

2. Liquidation of 2. A single entity gains
assets at most 15% to 35% of
voting rights
3. A single entity
gains more than 50% 3. Old directors no
of voting power longer compose a
majority after 2
4. Old directors no years
longer compose a
majority after 2 4. Firm repurchases at
years most 30% of stock
within one year

5. Firm makes a cash
distribution worth at
most 30% of the
voting stock

6. A merger or
consolidation where
old shares are
exchanged for cash or
assets of the firm

7. A decline in the risk
rating of the debt











31

TABLE 3-2
FREQUENCY OF EVENT-RISK CLAUSE TRIGGERS WITHIN
EVENT-RISK CLAUSE GROUPS


Transfer Liquidation Old Significant Significant Merger Rating
of of assets directors stock cash where decline
assets no longer repurchase distribution shares
compose are
majority exchanged
of board

DEC 15, 0 18 17 19 19 19
19 (79) (0) (95) (89) (100) (100) (100)

CCC 16 10 9 1 1 6 2
31 (52) (32) (29) (3) (3) (19) (6)

Percentages are in parentheses.









32

trigger mechanisms could be activated. The DEC change of

control triggers are as low as 15% of voter control by a

single entity and as high as 35%. Most of the DECs contain

trigger provisions for transfers of assets, when old directors

no longer compose a majority of the firm's board after 2

years, and significant stock repurchases. All of the DECs

have trigger provisions for significant cash distributions and

mergers or consolidations where old shares are exchanged for

cash, securities, or other property. Aside from the trigger

provision for the acquisition of over 50% of voter control,2

the CCCs do not have any other common trigger provisions.

This evidence shows that holders of DEC debt are much more

likely to enjoy the security of the put option than are the

CCC holders, thus lower yields are expected on DEC issues.

For debt issues with a DEC, CCC, or neither clause, the

associated protective clauses are tabulated in Table 3-3

below. None of the DEC issues contain a limitation on debt or

dividends. Among those issues which either have a CCC or

neither event-risk clause, most of the issues contain

limitations on funded debt, restrictions on dividends, and

limitation on mergers and consolidations. Several of the

issues also contain a negative pledge clause. This

information indicates that the DECs may be substituting for

limitations on funded debt and restrictions on dividends,

while they are unable to substitute for negative pledge


2 Some of the triggers are as high as 67%.












33

TABLE 3-3
FREQUENCY OF PROTECTIVE COVENANTS WITHIN
EVENT-RISK CLAUSE GROUPS


Limit Limit Defeasance Limit on Limit Negative Limit Limit on
on on clause dividends on pledge on sale/
total net senior clause merger leaseback
funded worth funded
debt ___ debt

DEC 0. 0 14 0 0 18 19 18
19 (0) (0) (74) (0) (0) (95) (100) (95)

CCC 26 9 31 28 13 17 30 7
31 (84) (29) (100) (90) (42) (55) (97) (23)

No 13 5 16 18 4 9 21 3
clause (62) (24) (76) (86) (19) (43) (100) (14)
21

Percentages are in parentheses.











clauses and limitations on mergers and consolidations. When

the debt issues are broken down into the three groups, the

results for DECs concerning the limitations on dividends and

funded debt contrast with Lehn and Poulsen's findings that

most issues with event-risk clauses also contain these

limitations.

Among the issues in the CCC and neither-clause groups,

the funded debt restrictions are broken down to reflect the

different types of clauses that may be included. Limitations

on total funded debt, which appear in a majority of these

issues, typically state that the firm may not issue any new

debt unless the firm's fixed charge coverage ratio is within

a given bound. The bound varies per issue, but usually starts

around 1.4, and increases over time until the issue matures.

A small number of the issues restrict debt according to the

size of the issue, the amount of debt in the firm, the firm's

debt/equity ratio, or a combination of these.

A significant minority of the CCC and neither-clause

issues contain a limitation on senior funded debt in addition

to the limitation on total funded debt. A typical clause

states that the firm may not incur any debt which is

subordinate to senior debt (typically bank loans) and senior

to the debt which contains the clause. Only two of the issues

which contain the limitation on the senior funded debt do not

also contain the limitation on total funded debt.









35

The likely explanation for the dearth of sale/leaseback

restrictions among the CCC and neither-clause groups is that

sale/leaseback restrictions only protect senior debtholders,

while the CCC and neither-clause debt is predominantly

speculative grade.

A large majority of all issues (86%) contain security

through defeasance. Since the appearance of a DEC does not

appear to be correlated with defeasance security, this

suggests, contrary to the assumptions of Asquith and Wizman,

that security through defeasance does not sufficiently protect

bondholders from event risk. All of the issues are unsecured

and only a handful are guaranteed. Only a minority of issues

in the CCC and neither-clause groups and none of the issues in

the DEC group contain a net worth restriction on the firm.

This suggests, contrary to Asquith and Wizman, that

bondholders do not value this restriction as significant

default protection.

There is evidence that the yield spreads on DEC debt are

lower than for the CCC and neither-clause debt. Spreads are

calculated for the 71 issues whose prospectuses are analyzed.

Average spreads are calculated for the CCC, DEC, and neither-

clause groups. The average spread for the CCC group is 4.16%,

the average for the DEC group is 1.23%, and the average for

the neither-clause group is 3.79%. The t-statistic for the

difference in means between DEC and CCC is 7.44 (df=38),

between DEC and neither-clause is 7.97 (df=26), and between









36

CCC and neither-clause is -.84 (df=48). From the preceding

analysis, the DEC appears to be the only effective event-risk

clause, in terms of protecting bondholders and lowering debt

financing costs, among the two types of clauses.

A crosstabulation table of the various protective

covenants appears in Appendix G. This table also includes

correlation coefficients between the presence of the

covenants.

Table 3-4 presents a frequency distribution of the types

of clauses by rating, as well as presenting average yield

spreads by rating and by type. This table shows that DECs are

mostly investment grade, while the CCCs in this data set are

mostly speculative grade. If the DECs are mostly investment

grade, then it may not be the clause itself which is reducing

spreads. Other aspects of the debt, such as its quality

rating or seniority, are likely affecting the yield spreads

while the presence of a DEC is correlated with an investment

grade rating or seniority. The reason for this correlation is

not clear and requires further investigation.


Regression Results


The yield spread regression models in this paper attempt

to determine the degree to which the existence of a DEC or a

CCC explain the variance in the dependent variable SPREAD

while controlling for other effects on yields. The first












TABLE 3-4
FREQUENCY OF EVENT-RISK CLAUSES AND YIELD SPREADS IN
DIFFERENT RATING GROUPS

Average
% Spread Number
Aaa and Aa
Neither clause 0.58 32
DEC NA 0
CCC NA 0
Total 0.58 32

A
Neither clause 0.93 101
DEC 1.04 14
CCC 1.13 2
Total 0.95 117

Baa
Neither clause 1.24 27
DEC 1.48 8
CCC 1.54 1
Total 1.30 36

Ba
Neither clause 3.46 6
DEC 2.69 1
CCC 3.92 4
Total 3.56 11

B
Neither clause 4.79 68
DEC 2.84 1
CCC 5.06 23
Total 4.83 92


Total Sample 2.29


288









38

regression includes all 288 observations gathered from

Moody's Bond Survey. Table 3-5 below contains the tested

model.

The squared term to maturity is included to account

for concavity in the yield curve.

Shelf registration is used by firms for which the

market does not require a quality certification each time

the firm issues debt. These firms typically have an

excellent credit history and are currently in sound

financial condition. The shelf registration variable is

included to account for the hypothesis that shelf

registration is a signal for a low default risk issue.

The results of the regression model given in Table 3-5

are reported below in Table 3-6.3 This regression model is

similar to the one used by Crabbe and has similar results

for DECs. While some of the explanatory variables are

correlated with the ratings variables, condition indexes

calculated for this regression model indicate that

multicollinearity only exists between the TERM and TERM2

variables and the SI and ratings variables. Therefore, the

t-tests on these variables should be the only values

underestimated due to multicollinearity.

The RJR variable does significantly increase yield

spreads. This regression suggests that the RJR takeover may

have increased the spreads on average by 44 basis points


3A correlation matrix appears in Appendix C.











TABLE 3-5
YIELD SPREAD REGRESSION MODEL


SPREAD=80+1 FACE+2TERM+TERM2+i4NC+35CCC+06DEC+C7PUT+PgSF

+19SI+o10RJR+3 1A+p12BAA+~13BA+314B

where:

SPREAD = the difference between a Treasury security yield
and an industrial debt yield where both securities
have approximately equal time to maturity.
Pi = parameter for explanatory variable i
go = intercept
FACE = face value
TERM = time to maturity
TERM2 = time to maturity squared
NC = 1 indicates not callable, 0 indicates callable
CCC = 1 indicates presence of a CCC put option, 0
indicates not present
DEC = 1 indicates presence of a DEC put option, 0
indicates not present
PUT = 1 indicates presence of a straight put option, 0
indicates not present
SF = 1 indicates presence of a sinking fund, 0
indicates not present
SI = 1 indicates shelf registration issue, 0 indicates
nonshelf issue
RJR = 1 indicates the debt was issued after October 21,
1988, 0 indicates the debt was issued on or before
that date
A = 1 indicates a Moody's rating of Al to A3, 0
indicates otherwise
BAA = 1 indicates a Moody's rating of Baal to Baa3, 0
indicates otherwise
BA = 1 indicates a Moody's rating of Bal to Ba3, 0
indicates otherwise
B = 1 indicates a Moody's rating of B1 to B3, 0
indicates otherwise












TABLE 3-6
YIELD SPREAD REGRESSION


Variable
INTERCEPT
FACE
TERM
TERM
NC
CCC
DEC
PUT
SF
SI
RJR
A
BAA
BA
B


Parameter
Estimate
.420463
-.001288
.036149
-.000473
.074727
.233399
-.332095
-.810833
.215773
-.215554
.438770
.430676
.722867
2.570981
3.891808


N = 288
# with CCC = 30
# with DEC = 24


F = 141.643
R2 = .8790
Adjusted R2 =


RESULTS


t value
1.724
-3.649
1.674
-.744
.661
1.509
-1.994
-3.731
1.680
-1.281
4.517
2.940
3.964
8.339
16.335


Prob >
.0858
.0003
.0953
.4576
.5093
.1326
.0471
.0002
.0940
.2011
.0001
.0036
.0001
.0001
.0001


.8728









41

across the sample period. Since the RJR variable does not

filter out non-RJR effects on yield spreads over time, the

total effect of the RJR takeover on yield spreads may not be

accurately measured by this parameter estimate.

The positive parameter estimate for the SF variable is

surprising. One possible explanation is the option effect

of sinking funds. Most sinking funds call for the gradual

retirement of debt. This can be done by calling the debt or

by repurchasing debt in the open market. The open market

repurchase allows the issuing firm to retire debt at a lower

strike price than with retirement via the call provision.

Since the issuing firm can use the sinking fund provisions

as an additional call option, the presence of the sinking

fund increases the risk to bondholders and would serve to

increase the yield spread.

Of the DSCs, the CCCs do not appear to provide any

significant protection to bondholders. This is expected

because CCCs are more difficult to activate than DECs and

are less likely to contribute value to a debt issue. Also,

as shown in Table 3-3, the CCC issues also contain many

protective covenants other than the CCC, reducing the

incremental event-risk protection from the CCC.

The regression suggests that the DEC is reducing yield

spreads by 33 basis points on average, with a p-value of

.0471 after adjusting for ratings. Crabbe's regression does

not distinguish between CCCs and DECs. However, Crabbe does









42

find that event-risk covenants reduce yield spreads by 24

basis points. Therefore, the two regression results appear

to concur for the full sample set.

A potential problem with interpretation of the DEC

parameter estimate is that the DECs are clustered in time,

occurring mostly during 1989. A changing yield curve during

the sample period could cause a misleading significance test

of the DEC parameter estimate. However, some of this

problem should be mitigated by the presence of the RJR

variable, which is time-oriented, in the regression.

In addition, the DECs are clustered among investment

grade bonds. An analysis of Table 3-4 indicates that in the

investment grade groups, the DECs do not appear to be

reducing yield spreads. However, the two DECs in the

speculative grade groups, DECs do appear to be reducing

yield spread. This clustering may distort the

interpretation of the results from Table 3-6. To address

this problem, a regression is run using the same model as

given above, but the speculative grade DEC data points are

removed from the sample set. The results of that regression

are reported in Table 3-7 below.

After the speculative grade DEC issues are removed

from the regression, the DEC variable loses its significant

impact on yield spread. Therefore, the DEC does not appear














YIELD SPREAD


Variable
INTERCEPT
FACE
TERM
TERM2
NC
CCC
DEC
PUT
SF
SI
RJR
A
BAA
BA
B


TABLE 3-7
REGRESSION RESULTS WITH SPECULATIVE GRADE
DEC ISSUES REMOVED


Parameter
Estimate
.364912
-.001236
.032760
-.000376
.061986
.225962
-.217539
-.809548
.179393
-.137807
.425142
.427085
.724505
2.717370
4.007638


t value
1.494
-3.502
1.519
-.591
.547
1.463
-1.242
-3.746
1.390
-.800
4.387
2.928
3.989
8.494
16.471


Prob >
.1364
.0005
.1299
.5549
.5849
.1448
.2154
.0002
.1657
.4243
.0001
.0037
.0001
.0001
.0001


N = 286
# with CCC = 30
# with DEC = 22


F = 143.231
R2 = .8809
Adjusted R2 = .8748









44

to provide significant protection top investment grade

bondholders, in marked contrast to Crabbe's results.4

Since DEC debt typically receives an investment grade

rating, it is interesting to remove speculative grade debt

from the sample to see if comparisons among similarly rated

debt issues affect test results. A regression is reported

in Table 3-8 below for investment grade bonds only. This

regression model includes no ratings variables. While the

DEC parameter estimate in this model is significantly

negative, it is likely that the DEC is acting only as a

proxy for an investment grade rating and does not indicate a

reduction in yield spread due to the presence of a DEC. The

PUT parameter estimate in this model is insignificant,

contrasting with significant parameter estimates in other

regression models. This occurs here because one of the data

points is in the B rating category and has a large yield

spread relative to other puttable debt. Without the ratings

variables, the yield spreads relative to the PUT variable

have high variance.

The preceding model is used with a data set that

includes only debt from the A rating group.5 Since most

DECs appear in A rated debt, this regression improves on the

results found by Crabbe by focusing on the debt most


As in Table 3-6, condition indexes indicate that there
is no multicollinearity affecting the DEC variable.

5See Appendix E for regression results for each rating
category.












TABLE 3-8
YIELD SPREAD REGRESSION RESULTS WITH SPECULATIVE GRADE
DEC ISSUES REMOVED AND WITH NO RATINGS VARIABLES


Variable
INTERCEPT
FACE
TERM
TERM
NC
CCC
DEC
PUT
SF
SI
RJR


Parameter
Estimate
2.417094
-.000935
.130353
-.004220
-.300340
.201112
-.767208
-.239238
1.062832
-2.187327
.809504


t value
8.509
-1.792
4.244
-4.792
-1.811
.882
-3.064
-.752
6.001
-11.827
5.849


Prob > I t
.0001
.0742
.0001
.0001
.0713
.3788
.0024
.4527
.0001
.0001
.0001


N = 286
# with CCC = 30
# with DEC = 22


F = 75.360
R2 = .7326
Adjusted R2 = .7229









46

affected by the RJR takeover and the DECs. These results

are reported in Table 3-9 below.

The overall statistics suggest that this regression

has little explanatory power. For this sample, the

parameter estimates suggest that both DEC and CCC variables

are insignificant. This finding supports the hypothesis

that the DEC provides no security for the high-grade debt,

contradicting the results of Crabbe.

The RJR takeover significantly increased yield spreads

in this rating group by 25 basis points. Thus, the debt

which suffered most from the RJR takeover, and was supposed

to receive unique event-risk protection from DECs, appears

to be receiving little or no such protection from the DECs.

Also, the PUT variable parameter estimate is significant and

is close to the result found by Chatfield and Moyer.6

These regression results are consistent with the view

that CCC clauses have no impact upon yield spreads and that

DEC clauses are a proxy for ratings.


Event Study Results


An event study is done to analyze the effect of the

issuance of new debt containing an event-risk clause on the

stock returns of the issuing company. Data come from the

Moody's Bond Survey for the period from April 1988 to August


6Regression results for the full data set without ratings
variables and the five rating groups are presented in Appendix
E.













YIELD SPREAD


Variable
INTERCEPT
FACE
TERM
TERM
NC
CCC
DEC
PUT
SF
SI
RJR


TABLE 3-9
REGRESSION RESULTS FOR


Parameter
Estimate
.602578
-.000362
.026202
-.000207
.115471
.061351
-.161914
-.902827
.261886
.011010
.253665


t value
2.146
-.697
1.045
-.267
.878
.130
-.880
-3.860
.906
.048
1.991


THE A RATING GROUP


Prob > I t
.0341
.4872
.2983
.7901
.3820
.8969
.3807
.0002
.3669
.9621
.0490


N = 117
# with CCC = 2
# with DEC = 14


F = 2.846
R2 = .2117
Adjusted R2 = .1373











1989. The latest data are limited to August 1989 due to

limitations of the data on the 1989 CRSP daily returns tape.

Some data are excluded if an announcement date or CUSIP

number are unavailable. For the DEC event study, since most

DECs occur in A-rated debt, the data set is limited to only

A-rated debt. Similarly, for the CCC event study, the data

set is limited to only B-rated debt. Daily stock returns

for the debt-issuing company are analyzed for 100 days after

information about a new debt issue was released. The date

of information release about the event, or the announcement

date, is considered to be the SEC registration date for

nonshelf issues, and the issue date for shelf issues. The

nonshelf date is chosen as the announcement date because

information about restrictive clauses in new, nonshelf, debt

issues would be publicly and completely available after the

security is registered with the SEC.7 Information about

all aspects of a new security and its issuing firm are

freely available to the public at the SEC when the security

is registered with the SEC. For shelf issues, the issue

date is used as the announcement date because a shelf issue

can be floated in only a few hours after the management of

the issuing firm decides that the firm needs debt financing.





7Details about the release of information for new
securities was obtain through discussions with the
underwriting office of Merrill Lynch in New York and with a
former official with the SEC.









49

A market model using data from 20 days after the event

to 100 days after the event is used to calculate an

intercept and a beta for each firm in the sample. This

model is used to calculate prediction errors for each firm:

PEjt = Rjt-(j+jRm, ) ,

where PEjt is the prediction error for firm j at day t, Rit

is the actual return for firm j at day t, & and A are the

market model parameter estimates, and Rt is the market

index return at day t. A two-day announcement period

abnormal return is calculated by adding the prediction

errors for day -1 and day 0 (the event date). Calculating

the announcement period this way accounts for announcements

made on the previous day but not reported until the event

day. Tests for statistically significant two-day

standardized prediction errors (SPE1) are done for firm j

using the following calculation:


0 PE
SPEj Jt


where


+ (R R()2R
S 2 1V + 1 + (Rt R ) 2
S3 M M
(Rmi R)2
i-i

V.2 is the residual variance of the market model regression

for firm j, M is the number of days in the estimation period









50

(80), and Rm is the mean market return over the estimation

period.

The average standardized prediction error is then

calculated as follows:


ASPE = -N SPEj,
j-i

where N is the number of debt issues in the sample. If it

is assumed that the standardized prediction error equals

zero, then a t-statistic can be calculated to determine

whether the ASPEt is significantly different from zero:


t = /N(ASPE) .

The results of the event study are reported in Table

3-10 below. Using a difference of means t-test, the two

ASPEts are significantly different with a t-statistic of

-2.91 and 26 degrees of freedom. These results suggest that

the stockholders of firms which are issuing debt containing

DECs are suffering significantly reduced returns relative to

firms not issuing DEC debt. This is an indication that the

market perceives a new risk of expropriation from

stockholders to management in firms which issue the DEC

debt.

If the CCCs are protecting bondholders and

simultaneously contributing to management entrenchment, then

the difference between the average prediction errors should

be significantly different from zero and the average










51

TABLE 3-10
DEC EVENT STUDY RESULTS


t-statistic
for
ASPE, S; Hn: ASPE,=O N

DEC -.52641358 .53366329 -1.75 11

Neither .07728859 1.21680821 .72 86
clause









52

prediction error for the CCC group should be more negative

than for the non-CCC group. The CCC event study results are

presented in Table 3-11 below. While the non-CCC average is

significantly different from zero, the difference between the

two ASPEts is not significantly different from zero (t=1.06,

df=22). These results indicate that the CCCs are having no

impact on management entrenchment and likely are not affecting

bondholder wealth.


Pairwise Tests for Differences in Yields


If the DSCs are truly reducing yield spreads, then the

yield spread on DSC debt would be expected to be lower than

the yield spread on non-DSC debt issued by the same firm. To

test this phenomenon, DSC debt is paired with non-DSC debt,

both issued by the same firm. Although 54 of the issues in

the data set contain some form of a DSC, only 16 of the issues

could be paired with a similar issue, which does not contain

a DSC, from the same firm. These issues are listed in Table

3-12 below. Yield spreads are calculated for each issue.

Differences in yield spreads are calculated for each pair of

issues. A t-statistic is calculated to test if the spread

differences are different from zero across the pairs.










53

TABLE 3-11
CCC EVENT STUDY RESULTS


t-statistic
for
ASPE_ S, H: ASPEt=0 N

CCC -.36965078 .36630099 -1.11 9

Neither -.70810047 1.24907344 -3.01 18
clause














TABLE 3-12
PAIRWISE COMPARISONS OF DEBT WITH AND WITHOUT A DUE-ON-SALE
CLAUSE ISSUED BY THE SAME FIRM
DEC Non-DEC Jan-90 Spread
Company name Amount Coupon Type Mat Yield Yield T-bills Spreads Differ NC CC DE Put SF
......................................................................................................


Anheuser-Busch Co


Becton Dickinson & Co

Caterpillar Inc

Corning Inc

Eaton Corp

Grumman Corp

Knight-Ridder Inc

Lockheed Corp

Masco Corp

Maytag Corportion

Mesa Ltd Partnership

Mitchell Energy & Devel

Penn Central Corp

Super Valu Stores Inc

VF Corporation

VF Corporation


350 9.000 D
100 8.000 N
100 9.950 N
50 10.875 N
300 9.750 D
99 10.125 D
100 8.750 N
75 8.250 D
100 8.875 D
100 8.000 D
200 10.375 N
75 9.500 N
200 9.875 D
100 8.000 N
300 9.375 N
300 7.875 N
300 9.250 N
200 8.750 N
175 8.875 N
100 8.875 N
300 13.500 SN
300 12.000 GSN
200 11.250 SRN
250 11.250 SRN
200 9.750 SN
133 11.000 SD
45 8.875 N
100 9.375 N
100 9.500 N
100 8.000 N
100 9.400 N
100 8.000 N


2009 9.09


1996
1999
1992
2019
2017
1999
2002
2019
2006
1999
1996
2009
1996
1999
1993
1993
1996
1999
1997
1999
1996
1999
1997
1999
1997
1999
1994
1999
1997
1996
1997


8.93

9.62

9.1

8.95

9.84

9.15

9.33

9.48

9.05

12.81

10.72

9.88

8.9

9.24

9.24


8.95

9.2

9.73

9.22

8.45

10.07

9

9.19

9.16

8.78

12.95

10.63

10.5

9.18

9.7

9.7


8.63 0.46 0.02 1 0 1


8.51
8.53
8.32
8.55
8.58
8.53
8.67
8.55
8.63
8.53
8.51
8.63
8.51
8.53
8.35
8.35
8.51
8.53
8.43
8.53
8.51
8.53
8.43
8.53
8.43
8.53
8.42
8.53
8.43
8.51
8.43


0.4
0.4
0.88
1.07
1.15
0.57
0.55
0.4
-0.18
1.31
1.56
0.52
0.49
0.8
0.84
1.13
0.65
0.52
0.35
4.28
4.44
2.19
2.2
1.35
2.07
0.37
0.76
0.71
1.27
0.73
1.27


-0.48

-0.08

0.02

0.58

-0.25

0.03

-0.04

0.48

0.17

-0.16

-0.01

-0.72

-0.39

-0.56

-0.54









55

The average difference is -.12 and the t-statistic for the

significance of this difference is -1.33245 with 15 degrees of

freedom. The data lack full independence due to the presence

of simultaneously issued VF Corporation debt. While the lack

of full independence and the small sample size do not allow

for strong conclusions, the difference in yield spreads

suggests that the DSCs are not significantly reducing yield

spreads relative to similar debt issued by the same firm.

This supports the management entrenchment hypothesis of the

impact of the DSCs on issuing firms.















CHAPTER 4
CONCLUSIONS


The takeovers of the 1980s were often financed with high

levels of debt, increasing the risks borne by old debtholders.

Prior to the RJR takeover, debtholders of large firms felt

insulated from the event risk of takeovers by virtue of the

large size of those firms. Taking over a firm the size of RJR

was assumed to be too costly for a bidder. After the RJR

takeover, markets began increasing the yield spreads of debt

issues due to the new perception of takeover risk for large

firms. To reduce these increased spreads, many issuers began

issuing debt with due-on-sale clauses which are designed to

protect debtholders against event risk. This dissertation

analyzes the level and quality of protection provided by these

clauses and the implication of including these clauses in new

debt indentures.

First, the dissertation examines prospectuses of 71 new

debt issues. Due to differing characteristics of various

event-risk clauses, this examination indicates that DSCs can

be broken down into two different groups: designated event

clauses (DECs) and change of control clauses (CCCs). The DECs

are shown to be much easier to activate that CCCs. Therefore,

bondholders should be more willing to reduce the yield spread









57

on debt which contains a DEC rather than a CCC. The average

yield spread of the DEC group is found to be significantly

lower than the yield spreads of the CCC or neither-clause

groups. DECs are found to be included in mostly high quality

debt, as opposed to CCCs which are found in subordinated, low

quality debt. A control group of debt issues, which includes

neither event-risk clause, is found to closely resemble the

CCC group of debt. The results of this analysis indicate that

some covenants which have been considered to offer strong

event protection to bondholders (i.e. Asquith and Wizman

(1990)) may actually offer little protection. Also,

contrasting with Lehn and Poulsen (1991), the results indicate

that the DECs are substituting for covenants restricting

dividend payments and new debt issuances.

Regression results build on the results of the

prospectus analysis. The regression results expand on the

results of Crabbe (1990) by including data preceding the RJR

takeover as a control group and by measuring the direct effect

of the RJR takeover on debt yield spreads. In the sample set

of 288 debt issues, DECs are found to significantly reduce the

yield spreads of the debt issues when bond ratings are

included as an explanatory variables. CCCs are not found to

significantly reduce yield spread. However, when two low-

rated DEC issues are excluded from the regression model, the

DECs are found to be insignificant. To more closely examine

the effect of the RJR takeover on highly rated debt, another









58

regression is performed which only includes A-rated debt as

assessed by Moody's rating system. This regression indicates

that neither event-risk clause significantly reduces the yield

spreads of debt issues which were most affected by the RJR

takeover. Both regressions offer some evidence that the RJR

takeover event increased yield spreads.

This dissertation examines the hypothesis that event-

risk clauses could potentially increase management

entrenchment in firms which include the clauses in their new

debt issues. An event study is conducted to determine if

stock markets perceive a potential loss of wealth resulting

from management entrenchment induced by the issuance of debt

with an event-risk clause. For nonshelf issues, the

announcement date for a new debt issue is considered to be the

date of registration with the SEC. For shelf issues, the

announcement date is considered to be the date that the debt

is issued. Event study results indicate that stockholders of

firms which issued debt containing an event-risk clause did

suffer a significant loss of wealth when the debt issue was

announced. This loss of wealth is hypothesized to result from

the perception by stockholders of increased management

entrenchment.

Finally, event-risk-clause debt issues are paired with

nonevent-risk-clause issues from the same firm to determine if

the event-risk clause is significantly reducing exposure to

event risk. Yield spreads of each issue in a pair are









59

calculated, then a difference in spread is calculated. These

differences are averaged across all pairs in the sample.

While the sample size of this test is small and thus yields no

concrete results, the test suggests that the event-risk

clauses are not reducing yield spread, and thus is not

reducing bondholder exposure to event risk.

The analysis and empirical results of this dissertation

raise significant questions about the quality of protection

provided by event-risk clauses. The results indicate that

there are two distinct event-risk clauses which provide

unequal protection to bondholders. These tests also suggest

that many firms may include event-risk clauses for the purpose

of window dressing or management entrenchment.




















APPENDIX A
MAIN DATA SET



Company name Amt Coupon Type Mat Rate Under Treas YLd NC CC DE Put SF SI Mo Da Yr
......................................................................................................


AAR Corp
Alcan ALuminium Ltd
ALttel Corporation
American Standard Inc
Ampex Group Inc
Anadarko Petroleum Corp
Anchor Glass Container
Anheuser-Busch Companies
Anheuser-Busch Companies
Anheuser-Busch Companies
AnnTaylor Inc
ARA Group Inc
Armstrong World Indus
AT&T Credit Corporation
Avalon Marketing Inc
Baxter International Inc
Baxter International Inc
Baxter International Inc
Baxter International Inc
Becton Dickinson & Co
Bibb Co
Boise Cascade Corporation
Boise Cascade Corporation
BP America Inc
BP America Inc
BP America Inc
Brown-Forman Corporation
Carlisle Plastics Inc
Caterpillar Inc
Center Capital Corp
Charter Medical Corp
Charter Medical Corp
Chevron Capital USA Inc
Coca-Cola Enterprises Inc
Consolidated Cigar Corp
Corning Inc
Cullum Companies Inc
Darling-Delaware Corp Inc
Dayton-Hudson Corp
Deere (John) Capital Corp
Deere (John) Credit Co
Dekalb Corporation
Dillard Department Stores
Dillard Department Stores
Dillard Department Stores
Divi Hotels N.V.
Dow Chemical Co
Dow Jones & Co Inc
Du pont (E.I.) de Nemours
Duracell Holdings Corp
Eagle Industries Inc
Easco Hand Tools Inc
Eastman Kodak Company
Eastman Kodak Company


65
150
150
550
225
100
150
200
350
250
100
175
125
75.9
100
100
100
150
100
100
100
100
100
250
200
200
100
100
300
150
355
200
100
250
62
100
100
165
100
150
150
50
50
50
50
60
150
100
300
400
300
100
750
350


9.5 N
9.625 D
10.375 D
12.875 SSD
13.25 SRN
8.95 N
13.375 SSD
10 0
9 N
8.75 N
13.75 SN
12.5 SD
9.75 D
14.25 N
14 SSN
8.875 D
9.5 N
9.25 N
9.25 N
9.95 N
14 SSN
9.875 N
9.625 N
9.875 GD
10.15 GN
10 GD
9.375 N
13.75 N
9.75 D
9 D
14 SSD
14.25 SD
10 GN
8 N
15 SSN
8.75 N
14 SSN
14 N
9.75 N
8.625 SD
9.625 SN
10 N
9.625 N
9.5 D
9.5 D
14.5 SRD
10.15 N
8.4 N
9.95 N
13.5 SD
13 SSN
12.875 SSN
9.2 N
10.05 N


2001 Baa2 GS WB 8.03
2019 A2 FB MS 8.14
2009 A3 SI 9.1
2000 B1 FB 8.92
1996 B1 DBL ML 8.89
1992 Baal KP 8.15
2000 B2 SLH DBL 8.85
2018 Aa2 DR 8.9
2009 Al DR + 7.95
1999 Al DR + 7.88
1999 B3 ML 8.04
2001 B1 GS 8.68
2008 Aa3 SBHU GS 9.02
1992 Al ML + 7.84
1998 B3 DBL 8.82
2018 A3 FB SB 9.01
2008 A3 GS ML 9.18
1996 A3 ML + 8.19
1999 A3 GS + 7.92
1999 Al GS FB 9.33
1999 B2 ML 8.35
2001 Baal SB 9.02
1998 Baal FB 8.81
2004 Al GS ML 9.3
1996 Al GS FB 9.61
2018 Al GS ML 8.9
1998 Al MS 8.58
1997 B2 FB 9.45
2019 A2 SLH + 8.42
2019 Baal MS + 8.02
2000 B3 DBL 9.43
2002 B3 DBL 9.44
1990 Aa3 FB 9.51
1993 A2 ML 7.8
1998 B3 FB 8.34
1999 Al GS LF 8.03
1998 B2 MS 9.07
1999 B3 DBL 9.3
1998 A2 GS SB 8.79
2019 Baal GS 7.99
1998 Baa3 ML GS 8.7
1998 Baa2 ML 8.62
1995 A3 GS 8.8
2009 A3 GS 8.24
2001 A3 GS 8.09
2003 B1 LFR DBL 9.38
1991 Al SB + 9.62
1994 Aa2 GS 7.81
1990 Aa2 GS UBS 9.51
2000 B3 DBL 9.04
1998 B2 ML FB 8.74
1998 B1 DBL 9.25
1995 A2 MS + 7.99
1994 A2 FB 9.39


9.5
9.66
10.45
12.875
13.25
8.95
13.38
10
9.03
8.8
13.94
12.5
9.8
14.25
14.25
8.91
9.536
9.25
9.25
10.05
14
9.875
9.69
9.875
10.19
10.071
9.421
13.75
9.75
9.01
14
14.25
10.05
8.49
15
8.79
14
14
9.77
8.63
9.69
10
9.64
9.54
9.5
14.5
10.15
8.4
9.95
13.5
13
13
9.23
10.05


0 1
1 1
0 1
1 0
0 0
0 1
1 0
1 1
0 1
0 1
0 0
1 0
0 1
0 1
1 0
0 1
0 1
0 1
0 1
0 1
0 0
0 1
0 1
0 1
0 1
0 1
0 1
1 0
1 0
0 1
1 0
1 0
0 1
0 1
1 0
0 1
0 0
1 0
0 1
0 1
0 0
0 1
0 1
0 1
0 1
1 0
0 1
0 1
0 1
1 0
0 0
1 0
0 1
0 1


10 24 89
7 20 89
4 5 89
6 29 88
11 14 88
4 29 88
10 12 88
6 24 88
12 6 89
12 6 89
7 14 89
5 25 89
4 19 88
7 13 89
10 26 88
6 14 88
6 22 88
9 13 89
12 7 89
3 13 89
9 27 89
2 7 89
7 5 88
3 6 89
3 21 89
6 24 88
4 7 88
3 31 89
6 6 89
10 13 89
8 26 88
8 26 88
2 24 89
12 12 89
8 30 89
7 13 89
11 23 88
3 16 89
10 18 88
7 31 89
10 11 88
4 15 88
5 17 88
9 6 89
10 20 89
7 29 88
4 12 89
12 1 89
3 3 89
9 21 88
10 12 88
9 188
1 11 90
3 9 89














Company name Amt Coupon Type Mat Rate Under Treas YLd NC CC DE Put SF SI Mo Da Yr
......................................................................................................


Eastman Kodak Company
Eastman Kodak Company
Eastman Kodak Company
Eastman Kodak Company
Eastman Kodak Company
Eaton Corp
Emerson Electric Co
Engelhard Corporation
Envirodyne Industries Inc
Essex Group Inc
Ethyl Corp
Exxon Capital Corp
Exxon Capital Corp
Exxon Capital Corp
Federated Department
Figgie International Inc
Flexi-Van Leasing Inc
Foodmaker Inc
Foodmaker Inc
Forest Oil Corp
Formica Corporation
Forstmann Textiles Inc
Fort Howard Corporation
Fort Howard Corporation
General Dynamics Corp
General Motors Accept
General Motors Corp
General Signal Corp
Georgia Pacific Corp
Georgia Pacific Corp
Georgia Pacific Corp
Gilbert/Robinson Inc
Gordon Jewelry Corp
Grumman Corp
GTE Corp
Gulf Canada Resources Ltd
Harcourt Brace Jovanovich
Harcourt Brace Jovanovich
Harris Corp
Harte-Hanks Comm
Harvard Acquisition Corp
Health Trust Inc Hospital
Health Trust Inc Hospital
Hertz Corp
Hook-SupeRx Inc
Horace Mann Educators
Horsehead Industries Inc
Hyster-Yale Materials Han
IBM
IBM
IBM Credit Corporation
IBM Credit Corporation
Imperial Oil Ltd
Inco Ltd
Indspec Chemical Corp
Insilco Corp
ITT Corp
ITT Corp
ITT Corp
ITT Corp
James River Corp
JC Penney & Company
Johnston Coca-Cola Bottle
Johnston Coca-Cola Bottle
Jones Intercable Inc
Jordan Industries Inc
JPS Textile Group Inc


400
300
125
300
300
100
100
100
200
140
200
110
200
200
500
175
100
300
150
115
100
100
355
355
100
250
200
125
200
250
250
85
151
200
300
125
200
200
150
200
200
140
130
75
80
200
125
200
500
750
250
400
300
150
75
270
100
100
100
100
250
200
100
200
150
102.3
125


9.5 N
10 N
9.95 D
9.75 N
9.875 D
8.875 D
10.5 N
10 N
14 SSD
12.375 SSD
9.8 N
9.8 GN
8.25 GN
8.25 GN
16 SSD
9.875 SRN
13.5 SSD
13 SSN
12.75 SRN
13.625 SSD
14 SSN
14.75 SSN
12.375 SSN
12.625 SD
9.375 N
9.8 N
9.75 N
10.65 N
10.125 N
10.5 D
10.25 D
15 SSN
13.75 SRN
10.375 N
10.25 D
9 D
14.25 SD
13 SRN
10.375 D
11.875 SD
14.25 SSD
15.25 SSD
11.25 GSD
9.7 N
13 SD
15 SD
14 JSN
12.375 SSD
9N
8.375 D
9.625 N
7.75 N
8.75 D
9.875 D
14.25 SSN
15 SSN
10.125 N
10.7 N
8.85 N
8.25 N
10.75 D
9.45 N
10.25 SRN
11.375 SN
13 SD
13.875 SSN
15.25 SSN


2000 A2 SB
2001 A2 FB
2018 A2 MS
2004 A2 FB +
2004 A2 FB
2019 A2 SLH
1990 Aaa GS
2000 A2 GS DR
2001 B3 SB
2000 B2 MS
1998 A2 FB +
1991 Aaa MS
1994 Aaa SB +
1999 Aaa SB
2000 B3 FB +
1999 Baa3 DBL
1998 83
1998 B1 DBL
1996 Ba3 DBL
1998 B2 DBL
1999 B2 DR
1999 B3 DBL
1997 B2 MS
2000 B2 MS
1995 A2 MS
1993 Aa3 FB
1999 Aa3 SB +
1990 A2 FB
2000 A3 SLH
2018 A3 GS
2018 A3 SB
1999 B2 ML
1996 Ba3 DBL
1999 Baa2 DR GS
2019 A3 PW +
1999 A2 SB +
2004 B3 FB
1997 B1 FB
2018 A2 SB KP
2008 Ba2 DBL
1998 B3 SBHU
1999 B3 DBL
2002 Baal DBL
1997 A3 FB
2001 B3 GS
2001 B2 GS
1999 B2 DBL
1999 B1 GS
1998 Aaa SB
2019 Aaa SB +
1992 Aaa SB
1992 Aaa SB +
2019 Aal FB JPM
2019 Baa2 MS
1999 B3 GS
1999 B2 ML
1990 A2 SLH
1990 A2 SB BS
1994 A2 ML SB
2001 A2 ML GS
2018 Baal KP
1998 Al FB
1999 Ba2 SB
2001 81 SB
2000 B2 PB +
1998 83 DBL
1999 B3 DBL


8.62
9.1
8.85
8.24
8.97
8.2
9.82
9.19
8.03
9.14
8.92
9.58
8.1
7.98
8.75
8.2
9.24
9.04
8.12
8.99
8.28
9.06
8.83
8.92
8.77
9.3
9.05
9.92
9.14
9.06
9.04
8.8
7.89
9.23
8.98
8.3
9.17
8.99
9.17
9.29
8.92
9.39
9.34
9.02
9.02
8.22
8.65
8.04
8.78
7.96
9.56
7.63
8.12
8.33
9.09
9.14
9.51
9.66
8.34
7.92
8.95
8.57
8.23
8.26
9.03
9.05
8.63


9.642
10.05
9.95
9.79
9.9
8.93
10.52
10.05
14
12.375
9.8
9.8
8.31
8.31
16
9.88
13.5
13
12.75
13.63
14
15
12.38
12.63
9.449
9.8
9.75
10.67
10.146
10.541
10.53
15.13
13.83
10.38
10.31
9.23
14.25
13
10.39
11.9
14.44
15.25
11.25
9.7
13.997
15
14
12.38
9.194
8.47
9.64
7.79
8.86
10.15
14.25
15
10.125
10.7
8.85
8.25
10.75
9.475
10.25
11.38
13.25
14.3
15.5


4 11 88
6 888
6 27 88
9 20 89
10 21 88
6 14 89
3 20 89
7 13 88
7 31 89
5 17 88
9 16 88
4 7 89
10 12 89
10 24 89
11 4 88
10 6 89
5 23 88
5 17 88
7 3 89
9 20 88
9 25 89
4 20 89
10 25 88
10 25 88
5 9 88
4 27 89
5 5 89
3 29 89
5 17 88
8 388
9 688
5 19 89
11 29 89
1 5 89
4 25 89
8 15 89
11 17 88
11 17 88
11 28 88
7 29 88
11 11 88
5 24 88
5 24 88
9 6 88
6 9 88
8 17 89
5 25 89
7 27 89
4 28 88
11 1 89
3 8 89
8 1 89
10 6 89
6 22 89
4 26 89
1 13 89
3 3 89
3 17 89
6 9 89
8 2 89
10 5 88
4 12 88
9 14 89
9 14 89
6 6 88
12 9 88
5 24 89














Company name Amt Coupon Type Mat Rate Under Treas Ytd NC CC DE Put SF SI Mo Da Yr
......................................................................................................


J&L Specialty Products
Kaiser Aluminum & Chem
Kaiser Foundation Health
Kash & Karry Food Stores
Kay Jewelers Inc
Kellogg Co
Kimberly-Clark Corp
Knight-Ridder Inc
Kroger Co
Kroger Co
Kroger Co
Lear Siegler Seating Corp
Limited (The) Inc
Limited (The) Inc
Linter Textile Corp
Live Entertainment Inc
Lockheed Corp
Loehmanns Holdings Inc
London Town Corp
LVI Group Inc
Mark IV Industries Inc
Marriott Corporation
Marriott Corporation
Martin Marietta Corp
Masco Corp
May Department Stores
May Department Stores
May Department Stores
May Department Stores
Maytag Corporation
McCaw Cellular Comm
McDermott Inc
McDermott Inc
McDonald's Corp
McDonald's Corp
McDonald's Corp
McDonnell Douglas Corp
Mesa Ltd Partnership
Mitchell Energy & Devel
Morningstar Foods Inc
Musicland Stores Corp
Northern Telecom Ltd
NRM Energy Company LP
NYNEX Corporation
Occidental Petroleum Corp
Occidental Petroleum Corp
Occidental Petroleum Corp
Occidental Petroleum Corp
Occidental Petroleum Corp
P A Holdings
Parker-Hannifin Corp
Pay & Pak Stores Inc
Payless Cashways Inc
Penn Central Corporation
Penn Traffic Company
Pennzoil Company
Pennzoil Company
Pennzoil Company
Pennzoil Company
PepsiCo Inc
PepsiCo Inc
Petrolane Gas Finance
Philadelphia Suburban
Philip Morris Companies
Philip Morris Companies
Philip Morris Companies
Philip Morris Companies


14 SSN 1999 B2
14.25 GSSN 1995 B2
9 N 2001 Aa2
14 SD 2001 B3
12.875 SSN 1995 B2
10.3 N 1990 Aaa
8.5 N 1991 Aa2
9.875 D 2009 Al
13.125 SD 2001 B2
12.875 SSD 1999 82
11.125 SRN 1998 B1
14 SD 2000 B3
10.625 N 1990 A2
8.875 N 1999 A2
13.75 SSD 2000 Ba3
14.5 SSN 1999 B3
9.375 N 1999 A3
13.75 SSN 1999 B2
13.625 SSN 1999 B3
13.5 SSN 1998 B3
13.375 SD 1999 B2
8.75 SRN 1993 A3
9 SRN 1995 A3
9.5 N 1995 A2
9.25 N 1993 A2
10.75 D 2018 Al
9.875 D 2000 Al
9.6 N 1995 Al
10.875 D 2018 Al
8.875 N 1999 A2
14 SSD 1998 B3
10.25 N 1995 Baa
12.25 SSN 1998 Bal
10.625 N 1990 Aa2
9.75 D 2019 Aa2
8.875 D 2019 Aa2
9 N 1993 A2
13.5 SN 1999 Ba3
11.25 SRN 1999 Bal
13 SSD 2000 82
13.75 SSN 1998 B2
9.25 N 1994 Aa3
13.875 SRN 1999 B3
9.55 0 2010 A2
11.125 D 2019 Baa
9.625 N 1999 Baa
9.25 SRD 2019 Baa
10.125 SRD 2009 Baa
10.125 SRN 2001 Baa
13.75 SSN 1999 B3
10.375 D 2018 A2
13.5 SSD 1998 B2
14.5 SSD 2000 B3
9.75 SN 1999 Baa
13.5 SN 1998 82
10.625 N 2001 A2
10.625 D 2018 A2
10.125 D 2009 A2
9.625 N 1999 A2
10.55 N 1990 Al
9.375 N 1993 Aa3
13.25 SSD 2001 B2
10.125 D 1998 Baa
9.25 N 2000 A3
10.15 N 1990 Baa
10.85 N 1990 Baa
10.5 N 1990 Baa


DBL
DBL PW
FB +
ML
DBL
SSLH
GS SB
GS
GS
GS
GS
KP
BS
SB MS
DBL
PW WS
GS FB
ML
KP
DBL
BS
ML
ML
GS
SBHU SB
MS +
MS +

MS ML
GS SB
DBL
3 ML
ML
ML +
ML +
MS +
ML
DBL
FB
FB
DLJ
SB +
DBL
FB +
2 DBL +
2 SB +
2 ML +
2 SLH +
2 DLJ
FB LF
KP +
GS
GS
1 SLH +
SB
ML LF
ML LF
SLH LF
SLH LF
MS UBS
FB +
FB
2 ML
ML +
1 ML
1 MS
1 SLH


8.37
7.81
8.27
9.02
7.75
9.82
8.04
9.18
8.94
8.98
8.29
9.2
9.85
7.87
8.98
8.8
8.04
9.13
8.21
9.07
9.5
8.04
8.55
8.85
8.47
9.1
9.1
8.81
9.37
8.06
8.96
8.71
8.92
9.82
8.95
7.83
8.43
9.14
9.19
9.03
9.37
8.76
9.13
8.68
8.61
8.23
7.83
8.16
8.01
8.04
9.26
8.96
9.01
7.77
8.76
9.24
8.98
7.94
7.93
9.82
8.89
8.41
8.97
8.31
9.47
9.82
9.92


14
14.5
9
14
12.88
10.3
8.58
9.95
13.125
12.875
11.13
14
10.63
8.88
13.75
14.5
9.39
13.75
13.63
13.5
13.65
8.75
9.194
9.529
9.41
10.75
9.875
9.6
10.875
8.89
14.25
10.25
12.25
10.63
10.05
9
9.063
13.5
11.25
13.1
13.75
9.25
13.875
9.55
11.13
9.63
9.34
10.2
10.2
13.75
10.44
13.5
14.5
9.75
13.5
10.74
10.65
10.23
9.68
10.55
9.424
13.25
10.15
9.33
10.15
10.85
10.53


9 29 89
12 14 89
9 21 89
2 1 89
7 28 89
3 20 89
5 16 88
4 19 89
1 19 89
1 19 89
1 22 90
12 15 88
3 21 89
7 31 89
10 6 88
5 19 89
10 17 89
2 10 89
6 13 89
5 13 88
3 22 89
4 11 88
4 27 88
5 12 88
9 16 88
6 8 88
6 8 88
6 8 88
8 24 88
7 10 89
6 10 88
6 9 88
6 14 88
3 20 89
4 26 89
8 2 89
6 14 88
4 25 89
2 14 89
6 17 88
8 17 88
5 24 89
2 10 89
3 19 90
5 24 89
6 27 89
8 3 89
9 12 89
11 14 89
7 21 89
6 188
6 10 88
11 9 88
8 3 89
6 16 88
4 10 89
4 19 88
11 8 89
11 8 89
3 20 89
8 15 88
9 26 89
6 28 88
2 12 90
3 2 89
3 20 89
3 29 89














Company name Amt Coupon Type Mat Rate Under Treas YLd NC CC DE Put SF SI Mo Da Yr
......................................................................................................
Philip Morris Companies 350 9 N 1998 A2 SB 8.98 9.11 1 0 0 1 0 1 5 9 88
Philip Morris Companies 500 8.875 N 1996 Baal SB 8.25 8.92 1 0 0 0 0 1 6 27 89
Philip Morris Companies 300 8.7 N 1993 Baal GS + 7.84 8.73 1 0 0 0 0 1 7 26 89
Philip Morris Companies 250 9.5 N 1995 A2 SLH 8.93 9.559 0 0 0 0 0 1 8 1 88
Philip Morris Companies 450 8.75 N 1996 A3 SB + 7.84 8.78 1 0 0 0 0 1 12 5 89
Philip Morris Companies 500 9.8 N 1998 Baal ML+ 9.17 10.07 0 0 0 0 0 1 12 20 88
Pilgrim's Pride Corp 50 14.25 SRN 1995 B1 FB 8.66 14.25 0 0 0 0 1 0 5 4 88
Pitney Bowes Credit Corp 100 10.65 N 1999 Al GS FB 9.42 10.65 0 0 0 0 0 1 3 27 89
Pitney Bowes Credit Corp 100 9.25 N 2008 Al GS FB 9.05 9.28 1 0 0 1 0 1 6 14 88
Pitney Bowes Credit Corp 150 8.55 N 2009 Aa3 GS FB 8.18 8.58 1 0 0 1 0 1 9 18 89
Playtex Family Products 250 13.5 SSN 1998 B2 DBL 9.1 13.75 0 1 0 0 0 0 12 21 88
Polaroid Corporation 150 8.875 N 1993 Al SLH 8.18 8.875 0 0 0 0 0 0 4 5 88
Procter & Gamble Co 100 10.45 N 1990 Aal GS 9.66 10.45 0 0 0 0 0 1 3 17 89
Proctor & Gamble Co 200 10 N 1990 Aal ML 9.47 10 0 0 0 0 0 1 3 9 89
Proctor & Gamble Co 150 8.5 SRN 2009 Baal ML 7.92 9.75 1 0 0 0 0 1 8 3 89
Proctor & Gamble Co 100 8 D 2029 Aal MS UBS 8.03 8.07 1 0 0 1 0 1 10 19 89
Quantum Chemical Corp 300 12.5 SSN 1999 B1 FB DR 9.42 12.5 0 1 0 0 0 0 3 23 89
Quantum Chemical Corp 500 13 SSD 2004 B1 FB DR 9.43 13 0 1 0 0 1 0 3 23 89
R P Scherer Corp 169.2 14 SSD 1999 B2 SLH 8.05 14.8 0 1 0 0 1 0 11 7 89
Ralphs Grocery Company 400 14 SSD 2000 B2 FB 9.42 14 0 0 0 0 1 0 8 18 88
Ralston Purina Co 200 9.25 D 2009 Baal SB + 8.28 9.4 1 0 1 0 0 0 10 6 89
Reebok International Ltd 100 9.75 D 1998 A3 KP 9 9.77 0 0 0 0 0 1 9 7 88
Reynolds Metals Co 100 9.375 D 1999 Baal GS ML 8.4 9.41 1 0 1 0 0 1 6 6 89
RJR Nabisco Inc 300 8.125 N 1991 Al SLH 7.71 8.226 1 0 0 0 0 1 4 7 88
RJR Nabisco Inc 300 9.25 N 1995 Al DR SLH 8.66 9.32 1 0 0 0 0 1 4 29 88
RJR Nabisco Inc 300 8.875 N 1992 Al DR + 8.33 8.95 1 0 0 0 0 1 5 17 88
Rockwell International 300 8.875 N 1999 Aa2 MS UBS 8.23 8.97 1 0 0 0 0 1 9 7 89
Rohm & Haas Co 75 10.3 N 1990 Al GS 9.52 10.33 0 0 0 0 0 1 3 10 89
Sara Lee Corporation 100 9.7 D 2000 Aa2 GS 9.06 9.71 0 0 0 0 0 1 8 3 88
Seagram (Jos. E.) & Sons 250 9.75 N 2000 A2 GS 8.85 9.84 0 0 0 0 0 1 6 16 88
Seagram (Jos. E.) & Sons 250 9.65 D 2018 A2 GS 9.06 9.682 1 0 0 1 0 1 8 3 88
Sealed Air Corp 170 12.625 SSN 1999 B1 8.21 12.63 0 1 0 0 0 0 6 29 89
Sears Roebuck & Co 200 9.5 N 1999 Al DWR 8.6 9.5 0 0 0 0 0 1 5 23 89
Sears Roebuck & Co 200 8.55 N 1996 A1 DWR + 7.62 8.55 0 0 0 0 0 1 8 2 89
Sears Roebuck & Co 200 9 N 1996 Al DWR + 8.12 9 0 0 0 0 0 1 9 18 89
Sequa Corporation 250 10.5 SSN 1998 Baa3 DBL BS 8.78 10.5 0 0 0 0 0 0 4 28 88
Sequa Corporation 150 9.625 N 1999 Baa2 ML + 8.09 9.66 1 0 1 0 0 1 10 19 89
Snyder General Corp 225 14.25 SSD 2000 B3 FB 9.03 14.25 0 0 0 0 1 0 11 11 88
Specialty Equipment Cos I 150 13.75 SSD 2000 B3 KP PJH 9.03 13.75 0 0 0 0 0 0 11 15 88
Specialty Retailers 100 14.625 SSN 1999 B2 DBL 8.87 14.73 0 1 0 0 1 0 7 3 89
SSC Holdings Corporation 175 13.25 SD 2000 B3 DBL 9.28 13.25 0 0 0 0 1 0 7 19 88
Sun Exploration & Prod 250 9.75 SRN 1998 A3 FB 8.93 9.75 0 1 0 0 0 0 9 14 88
Sun Exploration & Prod 250 10.375 SRD 2018 A3 FB 8.99 10.42 0 1 0 0 1 0 9 14 88
Super Valu Stores Inc 45 8.875 N 1999 A2 FB 8.29 9.24 1 0 1 0 0 1 6 8 89
Sybron Acquisition Co 160 13.25 SSN 1998 B3 DLJ 9.37 13.25 0 1 0 0 1 0 8 17 88
Tele-Communications Inc 450 11.125 SSD 2003 B1 PB 9.13 11.35 0 0 0 0 1 1 9 23 88
Tenneco Credit Corp 200 9 SRN 1995 Baa2 ML + 7.93 9.11 1 0 0 0 0 1 7 11 89
Tenneco Credit Corp 150 9.25 N 1996 Baa2 ML + 7.93 9.32 1 0 0 0 0 1 10 26 89
Texaco Capital Inc 250 9.75 GD 2020 Al SB + 8.61 9.75 1 0 0 0 0 1 3 13 90
Texaco Capital Inc 400 9 GN 1996 A2 MS 7.89 9 1 0 0 0 0 1 11 9 89
Texaco Capital Inc 200 9 GN 1999 A2 MS SB 7.9 9 1 0 0 0 0 1 12 11 89
Texas Instruments Inc 150 9 N 1999 Al MS GS 8.03 9.09 0 0 0 0 0 1 7 11 89
Texas Supermarkets Inc 85 13.75 SSD 2000 B3 GS 9.03 13.75 0 0 0 0 1 0 11 11 88
Textron Inc 100 10.55 N 1990 A3 9.66 10.55 0 0 0 0 0 1 3 14 89
Times Mirror Co 100 10.2 N 1990 Al MS 9.66 10.22 0 0 0 0 0 1 3 15 89
Times Mirror Co 100 8.7 N 1999 Al GS 8.39 8.7 1 0 0 1 0 1 6 7 89
Toll Corp 40 12.95 SN 1996 B1 DBL 8.91 13.13 0 0 0 0 0 0 9 9 88
Town & Country Corp 105 13 SSN 1998 B2 DBL 9.19 13.25 0 0 0 0 1 0 12 16 88
TPI Restaurants Inc 100 14.25 SSN 1998 B3 DBL MSC 8.92 14.25 0 0 0 0 0 0 11 10 88
Tracor Inc 190 14 SSN 1998 B2 ML 9.39 14 0 0 0 0 1 0 8 18 88
Turner Broadcasting 550 12 SSD 2001 B2 DBL 8.11 12.12 0 0 0 0 1 0 10 11 89
TW Food Services Inc 200 15 SD 2001 B2 DLJ 8.02 15 0 0 0 0 0 0 11 21 89
Unilever Capital Corp 150 10.44 GN 1990 Aaa GS 9.66 10.44 0 0 0 0 0 1 3 17 89
Union Oil Co of Calif 250 10.45 N 1991 Baa2 MS 9.82 10.45 1 0 0 0 0 1 3 31 89
Union Oil Co of Calif 250 9 GN 1993 Baa2 ML SB 8.24 9.1 1 0 0 0 0 1 4 22 88
Uniroyal Goodrich Company 165 14.5 SSD 2000 B3 DBL 8.85 14.5 0 0 0 0 1 0 6 16 88
Uniroyal Goodrich Company 250 14.125 SSN 1998 B2 DBL 8.76 14.125 0 0 0 0 1 0 6 16 88














Company name Amt Coupon Type Mat Rate Under Treas Yid NC CC DE Put SF SI Mo Da Yr
......................................................................................................
UNISYS Corporation 100 10.75 N 1990 A3 ML BS 9.82 10.75 0 0 0 0 0 1 3 20 89
UNISYS Corporation 200 9.5 N 1998 A3 SLH 8.95 9.59 0 0 0 0 O 0 6 13 88
United Brands Company 125 11.875 SD 2003 Ba3 DBL 9.07 11.875 0 0 0 0 1 0 4 2788
United Technologies Corp 100 9.625 N 1999 Aa3 SB GS 8.81 9.72 0 0 0 0 0 1 5 15 89
Univision Holdings Inc 105 13.375 SD 1999 B1 DBL LFR 9.11 13.5 0 0 0 0 0 0 8 1 88
US West Financial Service 100 10.25 N 1990 A2 ML 9.66 10.26 0 0 0 0 0 1 3 15 89
USG Corporation 600 13 SSD 2000 B1 SB 9.08 13.25 0 1 0 0 1 0 7 7 88
Van Doren Rubber Company 41 14.75 SN 1996 B3 9.17 14.75 0 0 0 0 1 0 12 20 88
VF Corporation 100 9.4 N 1996 A2 GS 8.32 9.4 1 0 1 0 0 1 10 5 89
VF Corporation 100 9.5 N 1999 A2 GS 8.27 9.5 1 0 1 0 0 1 10 5 89
Viacom International Inc 300 11.8 SSN 1998 B1 DBL BS 9.17 11.8 0 0 0 0 0 0 7 22 88
Waste Management Inc 250 8.75 D 2018 Al ML KP 9.08 8.79 0 0 0 1 0 0 4 29 88
Waxman Industries Inc 100 13.75 SSN 1999 B2 DBL 8.67 13.75 0 1 0 0 1 0 5 30 89
Weirton Steel Corp 300 10.875 SRN 1999 Ba2 BS + 8.27 10.96 1 0 1 0 0 0 10 5 89
Welbilt Corporation 75 13.75 SSN 1998 B3 KP LF 8.83 13.75 0 0 0 0 0 0 10 13 88
Westinghouse Electric 100 10.2 N 1990 Al SB 9.52 10.2 0 0 0 0 0 1 3 10 89
Westinghouse Electric 100 10.45 N 1990 Al SLH 9.88 10.45 1 0 0 0 0 1 3 28 89
Westvaco Corporation 100 10.25 D 2018 Al GS ML 9.09 10.25 0 0 0 0 1 1 6 22 88
Xerox Corporation 200 9.75 N 2000 A2 SB GS 8.62 9.75 1 0 0 0 0 1 3 15 90
Xerox Corporation 200 9.125 N 1994 A2 SB GS 8.43 9.18 1 0 0 0 0 1 6 6 89
Xerox Corporation 250 9.2 N 1999 A2 SB GS 8.03 9.2 0 0 0 0 0 1 7 13 89
Xerox Corporation 100 9.625 D 2000 A2 SB GS 8.96 9.63 0 0 0 0 0 1 10 7 88
Xerox Corporation 150 8.75 N 1995 A2 SB GS 7.93 8.85 1 0 0 0 0 1 10 24 89
Xerox Credit Corporation 175 10.125 N 1992 A2 SB GS 9.61 10.17 0 0 0 0 0 1 2 27 89
Xerox Credit Corporation 200 9.25 N 1993 A2 SB GS 8.5 9.35 1 0 0 0 0 1 3 5 90
Xerox Credit Corporation 150 10 N 1999 A2 SB GS 9.31 10.08 1 0 0 0 0 1 3 30 89
Xerox Credit Corporation 150 10.125 N 1999 A2 SB 9.31 10.14 0 0 0 0 0 1 4 14 89
Xerox Credit Corporation 100 8.75 N 1991 A2 SB GS 8.19 8.77 1 0 0 0 0 1 5 19 88
Xerox Credit Corporation 100 8.75 N 1991 A2 SB GS 8.13 8.8 0 0 0 0 0 1 6 688
Xerox Credit Corporation 150 8.5 N 1992 A2 SB GS 7.94 8.5 1 0 0 0 0 1 7 20 89
Xerox Credit Corporation 100 9.35 N 1993 A2 SB GS 8.62 9.35 0 0 0 0 0 0 9 22 88
Xerox Credit Corporation 200 8.375 N 1991 A2 SB GS 7.6 8.45 1 0 0 0 0 1 11 27 89
Zale Corporation 100 13.25 SRD 2001 Ba3 DBL MSC 9.32 13.25 0 0 0 0 1 0 4 14 89












DEFINITIONS OF APPENDIX A ABBREVIATIONS


AMT Face Amount
BS Bear Stearns
CC Presence of a Change
of Control Clause
D Debenture
DA Day of Issue
DBL Drexel Burnham Lambert
DE Presence of a
Designated Event
Clause
DLJ Donaldson Lufkin
Jenrette
DR Dillon Read
DWR Dean Witter Reynolds
FB First Boston
GD Guaranteed Debenture
GN Guaranteed Note
GS Goldman Sachs
GSD Guaranteed
Subordinated Debenture
GSSN Guaranteed Senior
Subordinated Note
JPM J.P. Morgan
JSN Junior Subordinated
Note
KP Kidder Peabody
LF Lazard Freres
LFR L.F. Rothschild
MAT Maturity Year
ML Merrill Lynch
MO Month of Issue
MS Morgan Stanley
MSC Morgan Schiff


N Note
NC Not Callable
PB Prudential-Bache
PJH Piper Jaffray &
Hopwood
PUT Presence of a Straight
Put Option
PW Paine Webber
RATE Risk Rating
SB Soloman Brothers
SBHU Smith Barney Harris
Upham
SD Subordinated Debenture
SF Presence of a Sinking
Fund
SI Shelf Issue
SI Stephens
SLH Shearson Lehman Hutton
SN Subordinated Note
SRD Senior Debenture
SRN Senior Note
SSD Senior Subordinated
Debenture
SSN Senior Subordinated
Note
TREAS Treasury Security
Yield
UBS UBS Securities
UNDER Underwriter
WB William Blair
WS Wertheim Schroder
YLD Yield to maturity
YR Year of Issue




















APPENDIX B
COMPARISON OF EVENT-RISK CLAUSES AND PROTECTIVE COVENANTS


Name


Amount Price
Type (mil) to Pay Spread A B C D E F G H I J K L M N O
. . . . . . . .- -


DEC Group *
AAR Corp N
Anheuser-Busch Companies N
Becton Dickinson N
Caterpillar Inc D
Corning Incorporated N
Eaton Corporation D
Figgie International Inc SRN
Harris Corporation D
Knight-Ridder Inc D
Lockheed Corporation N
Maytag Corporation N
Penn Central Corporation SN
Ralston Purina Company D
Reynolds Metals Company D
Sequa Corporation N
Super Valu Stores Inc N
VF Corporation N
VF Corporation N
Weirton Steel Corp SRN
Averages and Sums
Total 19

CCC Group
AnnTaylor Inc SN
Darling-Delaware Company SSN
Envirodyne Industries SSD
Gordon Jewelry Corp SRN
Grumman Corporation N
Hyster-Yale Materials SSD
Indspec Chemical Corp SSN
Jordan Industries Inc SSN
J&L Specialty Products SSN
Kay Jewelers Inc SSN
Kroger Co SD
Kroger Co SSD
Live Entertainment Inc SSN
Masco Corporation N
McDermott Incorporated SSN
McDermott Incorporated N
Mesa Limited Partnership SN
Mitchell Energy & Devel SRN
PA Holdings SSN
Petrolane Gas Service SSD
Playtex Family Products SSN
Quantum Chemical Corp SSN
Quantum Chemical Corp SSD
Scherer R.P. Corporation SSD
Specialty Retailers Inc SSN
SSC Holdings Corporation SD
Sun Exploration and Prod D
Sun Exploration and Prod N
Sybron Acquisition Co SSN


65
250
100
300
100
100
175
150
200
300
175
200
200
100
150
45
100
100
300
163.68


100 1.47 1 0
100 0.92 0 0
100 0.72 1 0
100 1.33 0 0
100 0.76 1 0
100 0.73 0 0
100 1.68 1 0
100 1.22 1 0
100 0.77 1 0
100 1.35 0 0
100 0.83 1 0
100 1.98 1 0
100 1.12 1 0
100 1.01 1 0
100 1.57 1 0
100 0.95 1 0
100 1.08 1 0
100 1.23 1 0
100 2.69 1 0
100 1.232 15 0


100 101 5.9 1
165 100 4.7 1
200 100 5.97 0
151 101 5.94 1
200 100 1.15 1
200 101 4.34 0
75 101 5.16 0
102.3 100 5.25 1
200 100 5.63 1
100 100 5.13 0
625 101 4.185 0
625 101 3.895 0
110 100 5.7 0
300 100 0.94 1
200 112.25 3.33 1
150 100 1.54 1
300 100 4.36 0
200 100 2.06 0
250 101 5.71 1
375 101 4.84 0
250 101 4.65 1
300 100 3.08 1
500 100 3.57 1
169.2 101 6.75 1
100 100 5.86 0
175 101 3.97 1
250 100 1.43 0
250 100 0.82 0
160 108.28 3.88 1


18 17 19 19 19 0



0 0 0 0 0 1
0 0 0 0 0 1
0 0 0 0 0 1
0 0 0 1 0 1
1 1 1 1 1 0
0 0 0 0 0 1
1 0 0 0 0 1
0 0 0 0 0 1
0 0 0 0 0 1
1 0 0 0 0 1
1 0 0 0 0 1
1 0 0 0 0 1
0 0 0 0 1 1
0 0 0 0 0 0
0 0 0 1 0 1
0 0 0 1 0 1
0 0 0 0 0 1
0 0 0 0 0 1
0 0 0 0 0 1
0 0 0 0 0 1
0 0 0 0 0 1
1 0 0 1 0 1
1 0 0 1 0 1
0 0 0 0 0 1
0 0 0 0 0 1
0 0 0 0 0 0
1 0 0 0 0 0
1 0 0 0 0 0
0 0 0 0 0 1


0 0
0 0
0 1
0 1
0 1
0 1
0 0
0 1
0 1
0 1
0 1
0 0
0 0
0 1
0 1
0 1
0 1
0 1
0 1
0 14


0 0 1 1 1
0 0 1 1 1
0 0 1 1 1
0 0 1 1 1
0 0 1 1 1
0 0 1 1 1
0 0 1 1 1
0 0 1 1 1
0 0 1 1 1
0 0 1 1 1
0 0 1 1 1
0 0 0 1 0
0 0 1 1 1
0 0 1 1 1
0 0 1 1 1
0 0 1 1 1
0 0 1 1 1
0 0 1 1 1
0 0 1 1 1
0 0 18 19 18
0 0 1819 18


1 1 1
1 1 1
1 1 1
1 0 1
1 0 0

1 1 1
1 0 0

1 0 0
1 0 0

1 1 1
0 0 1
1 1 1
1 0 1
1 0 0
1 0 0
1 1 0
1 1 0
1 1 1
1 0 0
1 0 0
1 1 1
1 1 1
1 0 1
0 0 1
0 0 1
1 0 1
101














Amount Price
Name Type (mil) to Pay Spread A B C D E F G H I J K L M N 0
...............................................................................................
Turner Broadcasting Sys SSD 550 101 4.01 0 0 0 0 0 0 0 1 1 1 1 0 0 1 0
Waxman Industries Inc SSN 100 100 5.08 0 0 0 0 0 0 0 1 1 1 1 0 0 1 0
Averages and Sums 239.76 101.05 4.156 16 10 9 1 1 6 2 26 9 31 28 13 17 30 7
Total 31

Neither Group
American Standard Inc SSD 550 3.955 1 0 1 1 1 0 1 0
Anchor Glass Container SSD 150 4.53 1 1 1 1 1 0 1 0
Charter Medical Corp SSD 355 4.57 1 0 1 1 0 0 1 0
Charter Medical Corp SD 200 4.81 1 0 1 1 0 0 1 0
Cullum Companies Inc SSN 100 4.93 1 0 1 1 0 1 1 0
Forest Oil Corporation SSD 100 4.64 0 1 0 1 1 0 1 0
Fort Howard Corporation SD 355 3.71 1 0 1 1 0 1 1 0
Fort Howard Corporation SSN 355 3.55 1 0 1 1 0 1 1 0
Harcourt Brace Jovan SRN 200 4.01 1 0 1 1 0 1 1 1
Harcourt Brace Jovan SD 200 5.08 0 0 1 1 0 0 1 0
James River Corporation D 250 1.8 0 0 0 0 0 1 1 1
John Deere Credit Co SN 150 0.99 0 0 1 0 1 1 1 0
Jones Intercable Inc SD 150 4.22 0 0 0 1 0 0 1 0
LVI Group Inc SSN 75 4.43 1 1 1 1 0 0 1 0
Mark IV Industries Inc SD 200 4.15 1 0 1 1 0 0 1 0
Penn Traffic Company SN 100 4.74 1 0 1 1 0 0 1 0
Polaroid Corporation N 150 0.695 0 0 0 0 0 1 1 1
Sequa Corporation SSN 250 1.72 0 1 1 1 0 0 1 0
Toll Brothers SN 40 4.22 1 1 1 1 0 0 1 0
Welbilt Corporation SSN 75 4.92 1 0 1 1 0 1 1 0
Zale Corporation SRD 100 3.93 0 0 0 1 0 1 1 0
Averages and Sums 195.48 3.79 13 5 16 18 4 9 21 3
Total 21
See Appendix A for abbreviation definitions.



COLUMN DEFINITIONS FOR APPENDIX B



A: Trigger by transfer of assets
B: Trigger by liquidation of assets
C: Trigger by old directors no longer compose a majority after 2 years
D: Trigger by significant stock repurchases
E: Trigger by significant cash distributions
F: Trigger by merger or consolidation where old shares are exchanged
G: Trigger by rating decline
H: Limitation on total funded debt
I: Net worth restriction on the surviving firm
J: Security provided by defeasance
K: Restrictions on dividends
L: Limitation of senior funded debt
M: Negative pledge clause
N: Limitation on mergers and consolidations
0: Sale/leaseback restrictions




















APPENDIX C
CORRELATION ANALYSIS

Simple Statistics

N Mean Std Dev


196.79653
11.44097
191.85069
0.34375
0.10417
0.08333
0.05208
0.28125
0.59028
0.64583
0.12153
0.20139
0.06597
0.12847
0.12500


122.81812
7.82095
270.95286
0.47579
0.30601
0.27687
0.22258
0.45039
0.49264
0.47909
0.32731
0.40174
0.24867
0.33520
0.33129


Simple Statistics

Minimum Maximum


25.00000
1.00000
1.00000
0
0
0
0
0
0
0
0
0
0
0
0


750.00000
40.00000
1600
1.00000
1.00000
1.00000
1.00000
1.00000
1.00000
1.00000
1.00000
1.00000
1.00000
1.00000
1.00000


Variable


FACE
TERM
TERM
NC
CCC
DEC
PUT
SF
SI
RJR
AA
A
BAA
BA
8


56677
3295
55253
99.00000
30.00000
24.00000
15.00000
81.00000
170.00000
186.00000
35.00000
58.00000
19.00000
37.00000
36.00000


Variable

FACE
TERM
TERM
NC
CCC
DEC
PUT
SF
SI
RJR
AA
A
BAA
BA
B






















Pearson Correlation Coefficients / Prob > 1RI under Ho: Rho=O / N = 288

FACE TERM TERM NC CCC

FACE 1.00000 0.09735 0.07727 0.04293 0.15235
0.0 0.0992 0.1910 0.4680 0.0096

TERM 0.09735 1.00000 0.95651 -0.10642 -0.03382
0.0992 0.0 0.0001 0.0713 0.5676

TERM2 0.07727 0.95651 1.00000 -0.06298 -0.07814
0.1910 0.0001 0.0 0.2868 0.1860

NC 0.04293 -0.10642 -0.06298 1.00000 -0.19893
0.4680 0.0713 0.2868 0.0 0.0007

CCC 0.15235 -0.03382 -0.07814 -0.19893 1.00000
0.0096 0.5676 0.1860 0.0007 0.0

DEC -0:04745 0.14066 0.11972 0.20499 -0.10281
0.4224 0.0169 0.0423 0.0005 0.0815

PUT -0.06971 0.36506 0.38768 0.19227 -0.07993
0.2383 0.0001 0.0001 0.0010 0.1761

SF 0.07993 0.22482 0.14413 -0.45273 0.26703
0.1761 0.0001 0.0144 0.0001 0.0001

SI 0.00383 -0.02077 0.10356 0.51379 -0.40929
0.9484 0.7256 0.0793 0.0001 0.0001

RJR 0.04875 -0.15159 -0.10734 0.19967 0.10992
0.4098 0.0100 0.0689 0.0007 0.0625

AA -0.03181 0.01847 0.05765 0.15592 -0.12683
0.5909 0.7550 0.3296 0.0080 0.0314

A -0.01195 -0.02836 0.01001 0.20166 -0.17124
0.8400 0.6317 0.8657 0.0006 0.0036

BAA 0.11818 -0.02397 -0.06987 -0.19235 0.13832
0.0451 0.6854 0.2372 0.0010 0.0188

BA 0.06286 -0.05624 -0.11883 -0.27788 0.20877
0.2877 0.3416 0.0439 0.0001 0.0004

B -0.09500 -0.02269 -0.09671 -0.27355 0.14607
0.1077 0.7014 0.1014 0.0001 0.0131






















DEC PUT SF SI RJR

FACE -0.04745 -0.06971 0.07993 0.00383 0.04875
0.4224 0.2383 0.1761 0.9484 0.4098

TERM 0.14066 0.36506 0.22482 -0.02077 -0.15159
0.0169 0.0001 0.0001 0.7256 0.0100

TERM2 0.11972 0.38768 0.14413 0.10356 -0.10734
0.0423 0.0001 0.0144 0.0793 0.0689

NC 0.20499 0.19227 -0.45273 0.51379 0.19967
0.0005 0.0010 0.0001 0.0001 0.0007

CCC -0.10281 -0.07993 0.26703 -0.40929 0.10992
0.0815 0.1761 0.0001 0.0001 0.0625

DEC 1.00000 -0.01414 -0.10478 0.09793 0.19701
0.0 0.8112 0.0758 0.0972 0.0008

PUT -0.01414 1.00000 -0.14663 0.13174 -0.02246
0.8112 0.0 0.0127 0.0254 0.7042

SF -0.10478 -0.14663 1.00000 -0.54668 -0.16652
0.0758 0.0127 0.0 0.0001 0.0046

SI 0.09793 0.13174 -0.54668 1.00000 0.10642
0.0972 0.0254 0.0001 0.0 0.0714

RJR 0.19701 -0.02246 -0.16652 0.10642 1.00000
0.0008 0.7042 0.0046 0.0714 0.0

AA 0.04165 0.05630 -0.16176 0.26666 -0.03564
0.4814 0.3411 0.0059 0.0001 0.5469

A 0.13053 0.03815 -0.23710 0.33035 -0.00830
0.0268 0.5190 0.0001 0.0001 0.8885

BAA -0.02952 -0.06230 0.14486 -0.26211 -0.09566
0.6178 0.2920 0.0139 0.0001 0.1052

BA -0.11576 -0.09000 0.33682 -0.43974 0.02396
0.0497 0.1276 0.0001 0.0001 0.6856

B -0.11396 -0.04134 0.34735 -0.43232 0.01646
0.0534 0.4846 0.0001 0.0001 0.7808






















AA A BAA BA B

FACE -0.03181 -0.01195 0.11818 0.06286 -0.09500
0.5909 0.8400 0.0451 0.2877 0.1077

TERM 0.01847 -0.02836 -0.02397 -0.05624 -0.02269
0.7550 0.6317 0.6854 0.3416 0.7014

TERM2 0.05765 0.01001 -0.06987 -0.11883 -0.09671
0.3296 0.8657 0.2372 0.0439 0.1014

NC 0.15592 0.20166 -0.19235 -0.27788 -0.27355
0.0080 0.0006 0.0010 0.0001 0.0001

CCC -0.12683 -0.17124 0.13832 0.20877 0.14607
0.0314 0.0036 0.0188 0.0004 0.0131

DEC 0.04165 0.13053 -0.02952 -0.11576 -0.11396
0.4814 0.0268 0.6178 0.0497 0.0534

PUT 0.05630 0.03815 -0.06230 -0.09000 -0.04134
0.3411 0.5190 0.2920 0.1276 0.4846

SF -0.16176 -0.23710 0.14486 0.33682 0.34735
0.0059 0.0001 0.0139 0.0001 0.0001

SI 0.26666 0.33035 -0.26211 -0.43974 -0.43232
0.0001 0.0001 0.0001 0.0001 0.0001

RJR -0.03564 -0.00830 -0.09566 0.02396 0.01646
0.5469 0.8885 0.1052 0.6856 0.7808

AA 1.00000 -0.18678 -0.09885 -0.14280 -0.14058
0.0 0.0015 0.0941 0.0153 0.0170

A -0.18678 1.00000 -0.13346 -0.19280 -0.18980
0.0015 0.0 0.0235 0.0010 0.0012

BAA -0.09885 -0.13346 1.00000 -0.10204 -0.10045
0.0941 0.0235 0.0 0.0839 0.0888

BA -0.14280 -0.19280 -0.10204 1.00000 -0.14512
0.0153 0.0010 0.0839 0.0 0.0137

B -0.14058 -0.18980 -0.10045 -0.14512 1.00000
0.0170 0.0012 0.0888 0.0137 0.0


















FREQUENCY


APPENDIX D
OF CLAUSES ACROSS TIME


Total %CCC
17 0.00%
15 0.00%
28 7.14%
7 14.29%
13 7.69%
13 15.38%
12 0.00%
12 8.33%
6 16.67%
4 50.00%
7 14.29%
35 8.57%
13 7.69%
11 18.18%
12 8.33%
18 33.33%
10 10.00%
14 14.29%
17 0.00%
9 22.22%
8 12.50%
2 0.00%
1 0.00%
4 0.00%


Date
Apr-88
May-88
Jun-88
Jul-88
Aug-88
Sep-88
Oct-88
Nov-88
Dec-88
Jan-89
Feb-89
Mar-89
Apr-89
May-89
Jun-89
Jul-89
Aug-89
Sep-89
Oct-89
Nov-89
Dec-89
Jan-90
Feb-90
Mar-90


CCC
0
0
2
1
1
2
0
1
1
2
1
3
1
2
1
6
1
2
0
2
1
0
0
0


DEC
0
0
0
0
0
1
0
1
0
1
0
1
1
0
5
3
1
0
8
0
1
1
0
0


Both
0
0
2
1
1
3
0
2
1
3
1
4
2
2
6
9
2
2
8
2
2
1
0
0


%DEC
0.00%
0.00%
0.00%
0.00%
0.00%
7.69%
0.00%
8.33%
0.00%
25.00%
0.00%
2.86%
7.69%
0.00%
41.67%
16.67%
10.00%
0.00%
47.06%
0.00%
12.50%
50.00%
0.00%
0.00%


%Both
0.00%
0.00%
7.14%
14.29%
7.69%
23.08%
0.00%
16.67%
16.67%
75.00%
14.29%
11.43%
15.38%
18.18%
50.00%
50.00%
20.00%
14.29%
47.06%
22.22%
25.00%
50.00%
0.00%
0.00%


























































-w ju A-a 88 ht-u OK-aa FSS A 04s Ju-O AW. Qt-N
Date

%CCC %-- DEC x %Both



Figure D-1. Percent of DSC Issues Across Time


3aO

















APPENDIX E
REGRESSION RESULTS FOR DIFFERENT RATING GROUPS


AA A BAA BA B FULL SET

INTERCEPT .581244 .602578 .321484 2.718921 4.868086 2.409072
(.0001) (.0341) (.2848) (.6774) (.0290) (.0001)

FACE -.000770 -.000362 .000219 .021248 -.001771 -.000885
(.0031) (.4872) (.7524) (.1808) (.0217) (.0906)

TERM .038431 .026202 .099462 -.179104 -.002079 .130499
(.0016) (.2983) (.0033) (.8460) (.9958) (.0001)

TERM2 -.000719 -.000207 -.002363 -.004431 -.002385 -.004268
(.0305) (.7901) (.0236) (.8886) (.8936) (.0001)

NC -.243061 .115471 .103618 4.373855 NA -.344534
(.0013) (.3820) (.4571) (.1407) (.0368)

CCC NA .061351 .501626 -2.888570 .101885 .204564
(.8969) (.2188) (.1825) (.6842) (.3714)

DEC NA -.161914 .030618 -8.541210 -1.898244 -.669383
(.3807) (.8830) (.1232) (.0807) (.0058)

PUT -.542569 -.902827 -.385414 NA -.001993 -.213089
(.0028) (.0002) (.3337) (.9983) (.5044)

SF -.017765 .261886 .705695 1.045730 .319610 1.060213
(.9068) (.3669) (.0172) (.5116) (.1376) (.0001)

SI NA .011010 .060551 NA -.186064 -2.157686
(.9621) (.7454) (.7352) (.0001)

RJR .087097 .253665 .079861 -.001791 .668253 .810897
(.3073) (.0490) (.7143) (.9989) (.0025) (.0001)

R2 .7191 .2117 .6330 .8545 .2589 .7293
Adj-R .6372 .1373 .4862 .2723 .1776 .7195
F 8.777 2.846 4.312 1.468 3.183 74.624
N 32 117 36 11 92 288


,,-value is in parentheses.
Some variables are not included if


they cause a data matrix not of full rank. This usually occurs


with dummy variables for which all values are either all 1 or all 0.





















APPENDIX F
YIELD SPREAD GRAPHS BY RATING GROUPS






1 2


















02




Fe- 88 Jun-88 5eo- 88 Dec-8 ApNr-89 Jul-89 Oct- 89 Jn- 90
Date


Figure F-1. Yield Spreads for the AA Rating Group


May-90















































-0 5 1 I I I I
FeD-88 Jun-88 Sep-88 Dec- 88 Apr-89 Jul-89 Oct-BS Jan-90 May-90
Date
One issue with a soreaa over 6% was remove



Figure F-2. Yield Spreads for the A Rating Group


25











15










o 5 m / l I I I
Fo-83 Jun- 8 SeD-88 Dec-88 Apr-89 Ju -89 Oct-89 Jan-90 May-90
Date



Figure F-3. Yield Spreads for the BAA Rating Group













77


7









5




L





in
a
cn













eD-8 8 Jun-88 5e- 88 Dec-88 Ar 89 Jul-89 OCt-89 Jan-90 My-90
Date



Figure F-4. Yield Spreads for the BA Rating Group




a




7











,
3)







3





FeD-88 un-88 Seo- 88 Dec-88 Ar -89 Jul-89 Oct-99 Jan-90 May-90
Date



Figure F-5. Yield Spreads for the B Rating Group




















CROSSTABULATIONS


APPENDIX G
AND CORRELATIONS OF VARIOUS


PROTECTIVE COVENANTS


H I J K L M N 0 DEC CCC No DSC

H 39
1.0000

I 12 14
.3066 1.0000

J 39 13 61
.4470 .0989 1.0000

K 39 14 43 46
.8139 .3654 .2949 1.0000

L 15 7 16 16 17
.3756 .3026 .1323 .3445 1.0000

M 18 4 37 20 11 44
-.3597 -.3410 -.0670 -.5168 .0316 1.0000

N 39 14 60 45 17 44 70
.1320 .0592 -.0484 -.3999 .0671 .1526 1.0000

0 5 0 22 5 0 25 28 28
-.6012 -.3999 -.1704 -.7929 -.4528 .4540 .0965 1.0000

DEC 0 0 14 0 0 18 19 18 19
-.6673 -.2996 -.2125 -.8199 -.3392 .4080 .0723 .6840 1.0000

CCC 26 9 31 28 13 17 30 7 0 31
.5121 .2061 .3564 .4706 .3712 -.1294 -.1358 -.3036 -.5321 1.0000

No 13 5 16 18 4 9 21 3 0 0 21
DSC .0909 -.0666 -.1812 .2839 -.0744 -.2552 .0775 -.3335 -.3917 -.5705 1.0000


See Appendix B for column definitions. The top number is the
correlation. The data set includes 71 issues.


crosstabulation. The bottom number is

















CROSSTABULATIONS OF


APPENDIX H
EVENT-RISK CLAUSES AND RELEVANT CHARACTERISTICS


DEC CCC Neither clause

Callable 8 28 153
Not callable 16 2 81

Shelf issue 18 0 152
Not shelf issue 6 30 82

Maturity
i 10 years 15 23 148
10-19 years 4 6 61
20-29 years 5 1 24
> 30 years 0 0 1

Rating
Aaa and Aa 0 0 32
A 14 2 101
Baa 8 1 27
Ba 1 4 6
B 1 23 68

N 24 30 234















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Dunn, K.B. and C.S. Spatt, "An Analysis of Mortgage
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BIOGRAPHICAL SKETCH


Hugh Miles Pratt was born in Natchez, Mississippi on

November 17, 1964. He graduated from Monett High School in

Monett, Missouri in 1982. After completing one year towards

the degree of Bachelor of Science in Biology at Tulane

University in 1983, he transferred to the University of

Missouri. In 1986, he graduated from the University of

Missouri with the degree of Bachelor of Science in Business

Administration with emphasis in Economics. After completing

one year towards the degree of Master of Business

Administration with emphasis in Finance at the University of

Missouri in 1987, he transferred to the doctoral program in

Finance at the University of Florida.









I certify that I have read this study and that in my
opinion it conforms to acceptable standards of scholarly
presentation and is fully adequate, in scope and quality, as
a dissertation for the degree of Doctor o Phildsoph.


Miles Livingston, hair
Professor of Finance,
Insurance, and Real Estate


I certify that I have read this study and that in my
opinion it conforms to acceptable standards of scholarly
presentation and is fully equate, i cope and quality, as
a dissertation for the deg e o octr o philosophy.


Andr PMcCollough
Professor of Finance,
Insurance, and Real Estate


I certify that I have read this study and that in my
opinion it conforms to acceptable standards of scholarly
presentation and is fully adequate, in scope and quality, as
a dissertation for the degree of Doctor of Philosophy.


Michael Ryngaert
Assistant Professor of
Finance, Insurance, and Real
Estate


I certify that I have read this study and that in my
opinion it conforms to acceptable standards of scholarly
presentation and is fully adequate, in scope and quality, as
a dissertation for the degree of Docto of Philos y.


Sanford/erg
Professor of Economics


This dissertation was submitted to the Graduate Faculty
of the Department of Finance, Insurance, and Real Estate in
the College of Business Administration and to the Graduate
School and was accepted as partial fulfillment of the
requirements for the degree of Doctor of Philosophy.

August 1991
Dean, Graduate School
























































UNIVERSITY OF FLORIDA

3 1262 08553 5754I
3 1262 08553 5754