Essays on the US Public Equity and High Yield Bond Markets as a Source of Finance for Shipping Companies
This thesis attempts to identify important factors that may affect the pricing and the probability of default of high yield bonds offered by shipping companies; and factors that may influence the pricing and the probability of underpricing of shipping US initial public offerings (IPOs). The analysis is carried out through five chapters and each chapter covers a topic on its own so that it can be read independently of previous and subsequent chapters. Chapter 1 provides an overview of the shipping US public equity market for the period 1987-2010. It also considers the reasons for a shipping company to go public; the advantages and disadvantages of such a decision; and the role of underwriters in the IPO process. Finally, it provides a literature review on shipping equity capital markets. Chapter 2 presents an overview of the shipping US high yield bond market for the period 1992-2010; it discusses the seniority of shipping high yield bonds, and, the advantages and disadvantages for shipping companies that decide to issue high yield bonds. Next, the credit ratings, the yield premia and the probability of default for shipping high yield bonds are examined. Finally, it provides a synopsis of the restructuring options that shipping companies have in case of default. Chapter 3 investigates the factors that may explain the dynamics of yield premia on seasoned shipping high yield bonds. The analysis utilises 40 seasoned high yield bonds offered by 32 shipping companies for the period April 1998 - December 2002; and it employs a set of microeconomic, macroeconomic and, industry related factors. The methodology used is the fixed effects panel data regression model and the results of the study suggest that the dynamics of yield premia of seasoned shipping high yield bonds can be explained by: the credit rating; the term-to-maturity; the changes in earnings in the shipping market, as well as the changes in the yields on the 10-year US Treasury bonds and the Merrill Lynch single-B index. This chapter contributes to the existing ship finance literature in the following ways: first, it attempts to model the changes of yield premia on shipping high yield bonds in the secondary market, which is of interest to investors and traders since information on changes in yield premia can be used for investment and asset allocation purposes. Second, it distinguishes between high yield bond issues offered by listed and unlisted companies, as well as, defaulted and non-defaulted bond issues in order to examine whether there is any difference in the impact of the explanatory variables on the determination of yield premia. Third, the analysis employs a set of macroeconomic and industry related factors that have not been previously used in the ship finance literature. Finally, the results may have implications for shipping companies in the following ways: yield premia are indications of the possible cost level in order to enter the shipping high yield bond market and may affect the company's image; hence, shipping companies may be interested in the yield premia as they can affect their financing decision for future/further issuance of high yield bonds or their possible stepping to the equity capital market. Chapter 4 uses a binary logit model to predict the probability of default for high yield bonds issued by shipping companies for the period 1992-2004. The results suggest that two liquidity ratios, the gearing ratio, the amount raised over total assets ratio, and an industry specific variable are the best estimates for predicting default at the time of issuance. In - and out - of sample bootstrap tests further indicate the predictive ability and robustness of the model. This chapter contributes to the existing ship finance literature as for the first time the probability of default of shipping high yield bonds is predicted by employing a binary logit model. Investors may benefit from this research since, by employing easily accessible and quantifiable factors they can identify at the time of issuance a) which factors to look at when making investment decisions; b) issues that may have a high likelihood to default. At the same time, shipowners who offer high yield bonds can also identify and focus on the factors that are important in predicting the probability of default for their bond issues. Chapter 5 examines the extent that public information, available prior to the US initial public offering of shipping companies, is only partially incorporated in the final offer price set by the underwriters. The sample includes 51 shipping US initial public offerings for the period 1987-2008, and a set of prospecti and market specific characteristics is employed. The Ordinary-Least-Squared Regression results show that 20-53 percent of the variation in first day returns is explained by employing public available information known prior to the offer date; therefore, it can be argued that final offer prices of shipping US IPOs are only partially adjusted to broadly accessible information. Additionally, the probability of underpricing is examined and the logit model correctly predicts 90 percent of the entire sample, with in and out-of-sample bootstrap tests further supporting the robustness of the model. This chapter contributes to the existing ship finance literature by testing the hypotheses of partial adjustment (Benveniste and Spindt, 1989) and winner's curse (Rock, 1986) theories as an explanation for shipping US IPOs' initial day returns. Moreover, it uses variables that have not been previously employed in shipping IPOs studies and the probability of underpricing a shipping IPO is examined for the first time. Finally, the results of the study show that by employing readily available information known prior to the shipping IPO date, investors can identify the factors that affect the initial day returns and also predict the probability of underpricing a shipping IPO. Chapters I and 2 are parts of chapters 20 and 21 in the book "The Blackwell Companion to Maritime Economics" (Grammenos and Papapostolou, forthcoming (a), forthcoming (b)). Chapter 3 has been published in Transportation Research Part E: Logistics and Transportation Review (Grammenos, Alizadeh, and Papapostolou, 2007) and an earlier version was presented at the International Association of Maritime Economists (lAME) conference in Izmir, Turkey in 2004. Chapter 4 has been published in Transportation Research Part E: Logistics and Transportation Review (Grammenos, Nomikos, and Papapostolou, 2008) and an earlier version was presented at the International Association of Maritime Economists (lAME) conference in Limassol, Cyprus in 2005. Finally, chapter 5 has been submitted to Transportation Research Part E: Logistics and Transportation Review and it is under review.
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