Original Issue High Yield Bonds: Aging Analyses of Defaults, Exchanges, and Calls

This paper presents an aging analysis of 741 high yield bonds and finds default, exchange, and call percentages substantially higher than reported in earlier studies. By December 31, 1988, cumulative defaults are 34 percent for bonds issued in 1977 and 1978 and range from 19 to 27 percent for issue...

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Bibliographic Details
Published in:The Journal of finance (New York) 1989-09, Vol.44 (4), p.923-952
Main Authors: ASQUITH, PAUL, MULLINS JR, DAVID W., WOLFF, ERIC D.
Format: Article
Language:English
Subjects:
Bond issues
Call options
Corporate bonds
Fallen angel bonds
Financial investments
Investment grade bonds
Junk bonds
Loan defaults
Par value
Yield
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Summary:This paper presents an aging analysis of 741 high yield bonds and finds default, exchange, and call percentages substantially higher than reported in earlier studies. By December 31, 1988, cumulative defaults are 34 percent for bonds issued in 1977 and 1978 and range from 19 to 27 percent for issue years 1979-1983 and from 3 to 9 percent for issue years 1984-1986. Exchanges are also a significant factor although they often are followed by default. Moreover, a significant percentage of high yield debt, 26-47 percent for 1977-1982, has been called. By December 31, 1988, approximately one third of the bonds issued in 1977-1982 has defaulted or been exchanged, and an additional one third had been called. On average, only 28 percent of these issues are still outstanding. There is no evidence that early results for more recent issue years differ markedly from issue years 1977 to 1982.
ISSN:0022-1082
1540-6261
DOI:10.1111/j.1540-6261.1989.tb02631.x