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Ebook Does the Secondary Loan Market Reduce Borrowing Costs?

Submitted by puput on Wed, 08/25/2010 - 04:54

Syndicated loans represent one of the most important debt financing vehicles in the US economy, funding more than half of aggregate corporate external capital demand. The rapid development of the primary syndicated loan market is matched by an even faster-growing secondary loan trading market, increasing from $8 billion in 1991 to $342 billion in 2007 a compound annual growth rate of 26.5 percent. Despite the importance of the loan resale market, the economic implications of the development of this market remain open to debate.

Making use of the secondary loan market database jointly provided by the Loan Syndication Trading Association (hereafter LSTA) and the Reuters Loan Pricing Corporation (hereafter LPC), we show that this market is primarily a clearinghouse for ex ante relatively riskier loans, and that the ex ante probability of loan resale dramatically impacts the primary market loan spread. This impact on the primary market is above and beyond the effect of the ex ante risks and other characteristics of borrowers, raising the spread by roughly 70 basis points for non-investment grade loans, a finding we speculate is due to concerns about monitoring of the resold loans. We also find that the lifting of loan covenants restricting resale lowers the loan spread by as much as 59 basis points for such loans – the option to access external funds brings lower costs. The average net impact of simultaneously lifting resale constraints and raising the probability of resale across the full sample is to lower spreads by 12-14 basis points (or $140-$164 thousand savings on the annual interest expense for the typical (median) size loan). While this beneficial net impact for issuers on loan spreads is absent for firms issuing investment grade loans as well as for firms with little risk of default, it is strong for those issuing non-investment grade loans (32 basis points), non-rated loans (25 basis points) and at risk of default (by measure of Altman’s (1968) Z, 27 basis points), prima facie evidence of the benefit of the secondary loan market.

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Ebook Financial Implications of Social Security Reforms in Japan

Submitted by wulan on Wed, 11/25/2009 - 02:32

As in other OECD countries, public pension insolvency is now one of the most serious problems that an aging society poses for the Japanese economy. The proportion of people aged 65 and above – 17.4 percent in 2000, which is close to the OECD average is expected to grow faster than in any other advanced country. The latest official population projections, published in January 2002, expect the share of elderly to rise to 28.7 percent in 2025 and 35.7 percent in 2050. These projections assume that the fertility rate will remain low at 1.39 by 2050, expecting no substantial recovery from 1.33 in 2001.

Rapid population aging is a big challenge to the sustainability of the social security system, which relies heavily on future generations. Under strong demographic pressures, the government announced a new pension reform plan in 1999 and has implemented it since April in 2000. Since Japan’s public pension program is basically a pay-as-you-go system, the government must reduce benefits and/or increase contributions in order to keep the programs financially sustainable. To finance pension benefits promised in the previous 1994 Reform, the contribution rate must eventually increase to 34.5 percent, which seems unacceptable. The 2000 Reform thus incorporates measures to hold down the burden on future generations by making eligibility conditions and benefit schemes less generous than previously scheduled.

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Ebook Financial Policy and Management of Capital Flows: The Case of Malaysia

Submitted by puput on Sun, 08/23/2009 - 07:48

THE management of capital flows and related issues such as the exchange rate and macroeconomic policies have become important to developing countries as they increasingly interact with the global economy, especially global finance. While finance has usually been seen as an important tool for economic development, in recent years it has also been an area of concern as the economies of many countries were destabilized because of problems or shocks originating from the financial sector.

This paper reviews the evolution of Malaysian financial policy, focusing especially on policies regarding various types of capital flows. Related issues such as management of the exchange rate and macroeconomic policies are also examined.

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