Bond clawback provisions allow the issuer to partially redeem a bond issue often within three years of issuance using proceeds only from new equity issues. We document that clawback bonds are often renegotiated and clawbacks provisions are rarely exercised. We find that the probability of exercising an option increases if the firm is large and has lower levels of debt, the issue is large and if the issue was subject of renegotiation prior to the exercised date, the workout took the form of a cash tender offer. We find that the likelihood of renegotiation of an IPOC is positively associated with the clawback provision being exercised, the issue is not rated and is less liquid and the firm is less profitable. Finally, we find that the higher yields observed on IPOCs are associated with the likelihood of the clawback provision being exercised. Yields are also associated with smaller issues, longer maturities, smaller firms, and unrated issues. We argue that the results are consistent with the view that bond clawback provisions are used strategically by firms aiming at facilitating future debt renegotiations.
Kenneth Daniels, Fernando Diaz, and Gabriel G. Ramirez, “The Exercise of Corporate Bond Clawbacks and Debt Renegotiation: An Empirical Analysis,” Journal of Corporate Finance 20, 2013, 14-21