The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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Stapled Finance
Published: 05/07/2010 | DOI: 10.1111/j.1540-6261.2010.01557.x
PAUL POVEL, RAJDEEP SINGH
“Stapled finance” is a loan commitment arranged by a seller in an M&A setting. Whoever wins the bidding contest has the option (not the obligation) to accept this loan commitment. We show that stapled finance increases bidding competition by subsidizing weak bidders, who raise their bids and thereby the price that strong bidders (who are more likely to win) must pay. The lender expects not to break even and must be compensated for offering the loan. This reduces but does not eliminate the seller's benefit. It also implies that stapled finance loans will show poorer performance than other buyout loans.
Bond Insurance: What Is Special About Munis?
Published: 11/27/2005 | DOI: 10.1111/j.1540-6261.2004.00698.x
VIKRAM NANDA, RAJDEEP SINGH
Close to 50% of municipal bonds are prepackaged with insurance at the time of issue. We offer a tax‐based rationale for the emergence of third‐party insurance of tax‐exempt bonds. We argue that insurance adds value as it allows a third party to become, in a probabilistic sense, an issuer of tax‐exempt securities. Insurance however reduces value by eliminating the possibility of a capital tax loss. While the net benefit from insurance increases with bond maturity, the benefit may not increase monotonically with default risk. We also provide empirical evidence supportive of the model's predictions.