The term structure of credit spreads in project finance<FN ID="fn1"><P>Supplementary material for this article can be found at <URL HREF="http://www.interscience.wiley.com/jpages/1076-9307/suppmat/ijfe.350.html">http:||www.interscience.wiley.com|jpages|1076-9307|suppmat|ijfe.350.html</URL></FN>
This paper finds that the term structure of credit spreads in project finance is hump-shaped. This contrasts with other types of debt, where credit risk is shown instead to increase monotonically with maturity ceteris paribus. We emphasize a number of peculiar features of project finance structures that might underlie this finding, such as high leverage decreasing over time, long-term political risk guarantees and the sequential resolution of uncertainty along project advancement stages. Our result is particularly relevant given the importance of project finance as a source of long-term capital for infrastructure especially in developing countries and has implications for risk management in the framework of Basel II. Copyright © 2007 John Wiley & Sons, Ltd.
Year of publication: |
2008
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Authors: | Sorge, Marco ; Gadanecz, Blaise |
Published in: |
International Journal of Finance & Economics. - John Wiley & Sons, Ltd.. - Vol. 13.2008, 1, p. 68-81
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Publisher: |
John Wiley & Sons, Ltd. |
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