The Research Of Credit Risk Of SME Private Debt

In developed economies, high-yield bonds have played an important role in the stock market. They attract the eyes of investors who prefer high risk with3times of the risk-free rate. Today, the Chinese version of the high-yield bonds-SME(small and medium enterprises) private debt has boarded the stage of history. Its appearance not only enrich our bond products, broaden the financing channels for SMEs, but also challenge the capability of China’s securities market and investors to credit risk prevention. SME private debt is bound to bring about the Chinese bond defaults. So it is necessary and valuable to research about bound pricing and credit risk controlling.In this paper, the study does research with the combination of theory and practice, qualitative and quantitative methods. In the introduction part, it introduces the background and significance of writing and puts forward the relevant concepts. Then it makes distinction between the meaning of corporate bonds and the SME private debt and explains the meaning of the credit risk of corporate bond and risk-based pricing. In chapter Ⅱ, the study reviews domestic and foreign bond risk theoretical studies from the perspective of credit spreads. The next part chapter Ⅲ focuses on the elements and characteristics of the SME private debt and variety of potential risks. It also analyzes the SME private debt’s main advantages by comparing with conventional bonds. Chapter IV involves empirical study of SME private debt’s credit spreads and risk pricing. A brief analysis with the use of existing sample data on SME private debt’s credit spreads found that the shape of credit spread curve is rendered as downhill. This is contrary to expected, which probably dues to the high assessment of the rating agencies on the level of private debt’s credit. The empirical research on bond pricing concludes that when the issue of the interest rate exceeds13.5%, the default risk implied by the private debt will increase significantly. Therefore, for the control of the SME private debt risk, the issue of the interest rate should be limited to lower than13.5%. Finally, the study puts forward several policy and practice recommendations for China by drawing on the development and regulatory experience of the U.S. high-yield bonds.