Impact Of New Debt Offerings On Existing Corporate Bondholders

Corporate bondholders may be concerned about the value of their bonds when the firm issues more bonds. Using bond data from the Trade Reporting and Compliance Engine (TRACE) from 2005 to 2017, we study the impact of new bond issues and relative maturity on the price of existing bonds. We find negative and significant average abnormal returns for existing bonds over a three‐day event window. Consistent with the adverse consequences of relative maturity of the new issuance, existing bond market returns are more strongly negative when the newly issued bonds mature before existing bonds. A funded debt covenant attenuates the negative return.