Risk and Return in Corporate Debt
Prof. Dr. Erwan Morellec, SFI Senior Chair, Ecole Polytechnique Fédérale de Lausanne
Geneva (French), June 17, 2019; 13:30 – 18:00
Zurich (English), July 2, 2019; 13:00 – 17:30
Debt is an increasingly important source of financing for non-financial firms, raising key questions about the risks and opportunities in the corporate debt market. The Master Class on “Risk and Return in Corporate Debt” provides an in-depth understanding of corporate debt, credit risk, convertibility features, and their relation to the returns earned by investors in corporate debt markets. It also shows how the risks in corporate debt can be managed. Lastly, it provides a close look at recent trends in the market for corporate debt.
Context
Corporate bond markets have become an increasingly important source of financing for non-financial companies. The total outstanding debt in the form of corporate bonds has reached USD 13 trillion as of end-2018. In real terms, this is double the amount outstanding before the 2008 financial crisis. Between 2008-2018, global corporate bond issuance averaged USD 1.7 trillion per year, compared to an annual average of USD 864 billion during the years leading up to the crisis. A similar trend has been observed in Switzerland, in which lending to non-financial firms has increased by more than 40% compared to its levels just before the crisis, with a sharp increase in activity in the primary market by all but the largest two banks and a development of new forms of lending contracts.
The increased use of corporate bonds (and loans) has been supported by regulatory initiatives in many economies aiming at stimulating the use of these financial instruments as a viable source of long term funding for non-financial companies and an attractive asset class for investors.
The rapidly growing market for corporate bonds and loans raises key questions about the risks and opportunities in the corporate debt market. The Master Class on “Risk and Return in Corporate Debt” provides an in-depth understanding of corporate debt, credit risk, convertibility features, and their relation to the returns earned when investing in corporate debt. It also shows how the risks in corporate debt can be managed by participants in both primary (financial institutions) and secondary (investors such as asset managers or pension funds) debt markets. Lastly, it provides a close look at the recent trends in the market for corporate debt.
Content of the Master Class
- The Many Forms of Corporate Debt
- Corporate Debt, Credit Risk, and Corporate/Credit Spreads
- Managing Risks: Covenants, Seniority, Diversification, and Credit Default Swaps
- Corporate Debt and Corporate Governance
- Risks and Returns in Hybrid Debt Markets: The Case of Convertibles
- What do Recent Data Tell Us? The Decline in Overall Bond Quality; The Rise of Covenant-Light Debt; Record Levels of Repayment Ahead; The Risk of Amplified Borrowing Costs
- What Can We Expect for the Swiss Market in the Future? The effects of Tax Reforms (the Federal Act on Tax Reform) and of the (possible) Tightening of Monetary Policy
Target Audience
Corporate and Institutional Banking, Asset Management, and Investment Banking.