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2004), “Commercial Bank Underwriting of Credit-Enhanced Bonds: are there Certification Benefits to the Issuer

By Anthony Saunders, John M. Schiff, Professor Finance and Roger D. Stover


We wish to thank Glenn Boyle and Ajai Singh for their helpful comments. Also, the research assistance of Zach Dietz, Anurag Joshi, Rahul Puri, and R. F. Stover was excellent and appreciated. Commercial Bank Underwriting of Credit-Enhanced Bonds: Are There Benefits to the Issuer? Recent studies have expanded the commercial bank certification hypothesis to include banks acting in an underwriting capacity. This paper further develops that research by focusing on the industrial revenue bond market in which banks have the unique opportunity to simultaneously act as both credit guarantor and underwriter. When explicitly allowing for bankissued standby letters of credit (guarantees), we find significantly greater yield spreads for those bonds underwritten by commercial banks compared to bonds underwritten by investment banks. Overall, no net benefit appears to accrue to the bond issuer when attempting to achieve joint (or double) certification benefits by employing commercial banks as both credit guarantor and underwriters except in the special case where the same bank acts as both guarantor and underwriter. This latter result is consistent with an "economy of scope " in monitoring and reusing information. 2 Commercial Bank Underwriting of Credit-Enhanced Bonds

Year: 2011
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