We examine the stock price reaction to announcements of privately placed debt. The results suggest no effect for firms with a public debt rating and offsetting effects for firms without a public debt rating. If the private placement appears to reduce monitoring for a firm without a debt rating, it produces a significantly negative price response. However, if it appears to increase financial flexibility and bargaining power, it produces a positive reaction. Overall, the evidence suggests that private placements of debt are more similar to public bond issues than bank loans in terms of the price reaction at the announcement.
International Review of Financial Analysis
Dennis, Steven A; Lu, Weili (2008). New Considerations in the Announcement Effects of Privately Placed Debt. International Review of Financial Analysis 17(3) 507-522. doi: 10.1016/j.irfa.2006.09.005. Retrieved from https://oaks.kent.edu/finpubs/3