Predicting default in the Norwegian High Yield bond market : a study of defaults in the years 2006-2013
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This thesis studies determinants of defaults experienced in the Norwegian High Yield bond market from 2006 to 2013. This is done by finding defaulted issuers from the bonds registered in the Norwegian Trustees database Stamdata. The information about defaulted and non-defaulted companies is coupled with financial and other characteristics available at the time of the bond issue. From a univariate assessment, the typical issuer that defaulted in the Norwegian High Yield bond had lower profits relative to their debt already before issuance, was significantly smaller than a non-non defaulted issuer, the issue had higher coupon rates adjusted for the level of interbank interest rates, and the issued amount was higher relative to the issuer’s total assets. Of the defaults found in the final sample of 176 issuers, 35 of the 59 (59%) observed defaults involved issuers that founded their companies less than six years from the issue year. Some of the rather surprisingly results regarding the liquidity ratios and the book equity ratio must be seen in connection with the relative high amount of start-up firms defaulting. Logistic regressions were carried out with default as the dependent variable using the variables in the SEBRA-basic bankruptcy prediction model developed by the Central Bank of Norway. The model performs decent when classifying the non-defaulted companies, but breaks down when classifying the defaulted companies. The logistic regressions back up the conclusions from the univariate analysis regarding profits relative to debt level, the size of the company, and that a start-up firm are more prone to default on their bond issues than more matured companies.