The Emergence of High Yield Bonds in the Nordic Region - An Empirical Study about the Characteristics and Rationale

Abstract: In the Nordic region, companies have traditionally had a strong relationship with their lending banks. For this reason, bank loans have accounted for a significant portion of the corporate funding. However, after the financial crisis, a new trend was detected in the Nordic corporate bond market, especially among high yield bonds. The issued value of Nordic high yield bonds grew with a CAGR of over 90% between 2010 and 2013. Studies on the subject thus far have been from a qualitative perspective, due to lack of data. This thesis aims at providing a better understanding of the Nordic high yield bond market from a more quantitative aspect, as a good number of data observations are now obtainable. The focus of this study is on two main parts: firstly, describing the characteristics and structure of the Nordic high yield bond market and comparing it to the US; and secondly, trying to understand the specific characteristics of the Nordic firms that issue high yield bonds. The descriptive results show that Nordic high yield bonds have a lower credit spread and shorter maturity in comparison to the US. The regression results show that companies with positive profitability, low leverage, high interest coverage ratio, and non-sponsor backed ownership contribute to a lower credit spread. Compared to more mature markets, the Nordic high yield bond market is still characterised by strong local rootedness.