Determinants of Bond Tender Offer Premiums and the Percentage Tendered

50 Pages Posted: 7 Dec 2003

See all articles by Eric A. Powers

Eric A. Powers

University of South Carolina - Darla Moore School of Business

Steven V. Mann

University of South Carolina

Date Written: April 2005

Abstract

We analyze a large sample of recent US corporate bond tender offers to understand what affects tender premiums as well as the percentage of bonds tendered. For the average (median) tender offer, the tender price is 4.75 (3.40) percent greater than the pre-tender market price while the percentage of bonds tendered is 82.3 (94.6) percent. Premiums offered by firms are greater when the firm is simultaneously soliciting consents to amend restrictive covenants and when the bond has a greater number of restrictive covenants. Premiums are also greater when risk-free yields are low and the yield curve is flatter - conditions where a firm might want to lock in favorable long-term rates by issuing new debt and retiring old debt. Bondholders respond to higher tender premiums by tendering a greater percentage of their bonds - a one percent increase in tender premium increases the tendering rate by as much as 10%. Bondholders also tender a greater percentage of bonds possessing less desirable characteristics such as a short remaining maturity or bonds that are simultaneously undergoing consent solicitations. Finally, we find that tender offers are easier to complete when bond ownership concentration is greater.

Keywords: Debt, Bonds, Tender Offer, Repurchase, Restructure

JEL Classification: G32, G34

Suggested Citation

Powers, Eric A. and Mann, Steven V., Determinants of Bond Tender Offer Premiums and the Percentage Tendered (April 2005). Available at SSRN: https://ssrn.com/abstract=475561 or http://dx.doi.org/10.2139/ssrn.475561

Eric A. Powers (Contact Author)

University of South Carolina - Darla Moore School of Business ( email )

1705 College St
Francis M. Hipp Building
Columbia, SC 29208
United States
803-777-4928 (Phone)

Steven V. Mann

University of South Carolina ( email )

Francis M. Hipp Building
Darla Moore School of Business
Columbia, SC 29208
United States
803-777-4929 (Phone)
830-777-6876 (Fax)

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