سرعت انتشار و کفایت افشا در راندمان بالا 144A بازار بدهی

I document the shift of high-yield issuance from the public to the Rule 144A private placement market and exploit data on credit spreads to investigate whether investors regard disclosure in the two markets as comparable. The key implications of the inadequate-disclosure hypothesis are that investors require premiums on 144A securities and that such premiums are largest for first-time bond issuers and privately owned firms about whom less information is publicly available. I find that 144A premiums, though positive initially, have vanished over time, and I find no evidence of larger 144A premiums for first-time issuers or private firms. Investors do, however, require premiums of first-time issuers, and to a lesser extent of privately owned firms, regardless of whether securities are issued in the 144A or public market. These findings imply that sophisticated investors do not value the incremental information provided by securities registration, but do value ongoing disclosure.

Rule 144A, adopted by the SEC in April 1990, establishes conditions under which private placements can be freely traded among ‘qualified institutional buyers’ (QIBs). By creating a more liquid class of private placement, the SEC hoped to attract issuers – especially foreign issuers – dissuaded by the illiquidity premiums commanded in the traditional private placement market and the registration requirements of the public market (Carey et al., 1993). Since 1990, foreign bond issuance in the U.S. has increased sharply; foreign issuance has been robust in both the public and Rule 144A markets, however, and it is not clear that Rule 144A was needed to trigger this growth. This paper focuses on a very different use of Rule 144A than the one anticipated by the SEC. Rule 144A has been widely adopted by domestic, below-investment-grade firms as a means of quickly issuing securities that are subsequently registered. By issuing high-yield debt as 144A private placements, issuers are able to raise funds as soon as their securities can be marketed to investors. When the bonds are subsequently registered, investors enjoy the benefit of public-market liquidity. The ability to issue debt quickly through the Rule 144A market has revolutionized issuance procedures for junk-rated firms in the same way that Rule 415 shelf registrations did for investment-grade firms. With a shelf registration statement, firms are able to pre-register securities that are issued up to two years in the future. The purpose of pre-registration is to permit rapid issuance as financing needs arise without the delay of waiting for the SEC to approve a registration statement. Yet many junk-rated firms do not meet the SEC's requirements for shelf registration, and even if they do shelf registration is not efficient for firms that cannot accurately predict their future financing requirements (Johnson, 1991, p. 417). The majority of junk-rated firms, therefore, register bonds at issuance, which, until the adoption or Rule 144A, led to potentially costly delays. The use of Rule 144A by junk issuers has increased steadily over time: in 1993, less than 15% of junk-rated issues were issued through Rule 144A; in 1997, in conjunction with record issuance, more than 80% of below-investment-grade issues were issued in the 144A market. That trend continued in 1998, and market analysts have suggested that eventually all high-yield debt will be issued in the 144A market (Investment Dealers’ Digest, 1997). While using the 144A market to issue bonds rapidly is extremely useful to issuers, it is unclear how this practice is viewed by investors. Lack of registration may imply less disclosure, and more rapid issuance may allow less time for due diligence by investors. Press accounts suggest that investors are divided about how significant the disclosure and due diligence issues are (Investment Dealers’ Digest, 1997). The reaction of investors to the 144A market is the focus of this paper. First, I document that below-investment-grade issuers use the 144A market primarily to issue bonds that are subsequently registered. As reported below, I find that more than 97% of domestic 144A high-yield bonds issued over a recent 18-month period were subsequently registered. This finding confirms that below-investment-grade issuers use Rule 144A to facilitate speedy issuance of public-like securities, not to issue securities that are structurally different from public securities. I then investigate whether investors require premiums on 144A issues as compensation for inadequate disclosure. If disclosure and the opportunity for investor due diligence in the 144A market is substantially less than in the public market, investors will require premiums as compensation for (i) greater uncertainty about credit quality and (ii) predictably higher levels of risk that result from the incentive of low- and high-risk firms to sort themselves into the public and 144A markets, respectively. Premiums on 144A issues could also reflect differences in liquidity between 144A and public securities. However, a key implication of the inadequate-disclosure hypothesis – and one that distinguishes it from the illiquidity hypothesis – is that 144a premiums should be largest for first-time bond issuers and privately owned firms about whom less information is available.1 I find that, controlling for ratings and other issue characteristics, the premiums on 144A debt, though positive initially, have vanished over time, and there is no evidence of greater 144A premiums for first-time bond issuers or private firms. This finding suggests that investors regard disclosure in the 144A market as comparable to that of the public market. It implies that the adoption of Rule 144A has been a favorable development for the high-yield market, as issuers have indicated a strong preference for issuing 144A securities and investors do not require premiums. The vanishing yield premiums on below-investment-grade 144A securities also implies that investors now regard them as no less liquid than their public counterparts. This is not surprising, as 144A securities are very liquid to begin with and almost all of these 144A securities are subsequently registered. While I find that 144A premiums are not incrementally larger for first-time bond issuers or privately owned firms, I find that the investors charge a premium on all below-investment-grade-debt issued by first-time issuers and privately owned firms. Premiums for first-time issuers average 30 to 35 basis points and are remarkably stable over time. Premiums for privately owned issuers average between 10 and 20 basis points, though these estimates are less robust. These findings suggest that ongoing disclosure reduces investor uncertainty, and, together with the result that investors do not require premiums on 144A issues, they lend support to SEC efforts to shift the focus of registration and disclosure from securities to firms. 2 Finally, I report several findings concerning the relation between credit spreads on below-investment-grade debt and issue characteristics. As expected, credit spreads increase with lower ratings and are negatively related to issue size and maturity. A more surprising result is that, controlling for ratings and other variables, spreads on senior debt exceed those on subordinated debt by approximately 80 basis points. The most plausible explanation for this result is that rating agencies systematically rate subordinated debt about one (minor) rating level below where the market thinks it should be rated. The market thus views subordinated debt as having better credit quality than senior debt of the same rating and hence requires lower returns. One other recent paper that looks at the Rule144A market is Chaplinsky and Ramchand (1997), but their analysis looks at all 144A issues – investment-grade and below-investment-grade, foreign and domestic – and is therefore quite general in nature. They do not identify speed of issuance as one of the advantages of issuing under Rule 144A. Using data through 1996, they conclude that premiums on domestic 144A issues declined from 179 basis points in 1990 to 106 basis points in 1996. By contrast, I find that premiums on domestic high-yield 144A issues were never as high as the estimates of Chaplinsky and Ramchand suggest and that such premiums had essentially disappeared by 1995. The remainder of this paper is organized as follows. Section 2 provides some background on private placements, the adoption of Rule 144A, and the use of Rule 144A by below-investment-grade issuers. Section 3 outlines the inadequate-disclosure hypothesis and describes the cross-sectional regressions and data used to test it. Section 4 presents my empirical results, and Section 5 concludes.

This paper's primary findings are that domestic high-yield issuers use Rule 144A to issue securities that are subsequently registered and are therefore fully public in nature, and that investors do not require premiums on 144A issues as compensation for inadequate disclosure. Its central message is that the adoption of Rule 144A has been a favorable development for the high-yield market. By circumventing the time-consuming securities registration process at issuance, high-yield firms are able to issue securities with less uncertainty about the final terms and conditions and receive funds more quickly, while apparently imposing no significant information costs on investors. Ironically, these benefits – indeed, the very manner in which Rule 144A has been used by high-yield issuers – were probably not anticipated by the SEC in adopting Rule 144A. A broader implication of this study is that sophisticated investors do not need, and therefore do not value, the incremental information provided by securities registration. The presumption that investors can fend for themselves with respect to obtaining information has long been the basis for the private placement exemption from the registration provisions of the Securities Act. This presumption is inherently difficult to test, as it is infrequent that otherwise similar securities are offered privately and publicly, as has been the case in the high-yield bond market. My results lend support to SEC efforts to shift the focus of registration and disclosure from securities to firms. In the high-yield debt market, securities registration (at the time of issuance) is costly to issuers and of little apparent value to investors. Moreover, issuers are finding ways of avoiding registration under existing law. Company registration would also allow the SEC to put more emphasis on improving the quality of ongoing disclosure. This emphasis appears warranted, as investors appear to value such information.