Abstract
Recent decades have witnessed several waves of buyout activity. We find leveraged buyouts (LBOs) to be a significant concern for bondholders by showing that a) intra-industry credit spreads increase upon an LBO announcement, b) yields on bonds without event risk covenants are, on average, 21 basis points higher than those on same-firm bonds with such covenants, and c) structural models calibrated to historical LBO events imply an impact of 18–21 basis points on 10-year credit spreads. The impact is strongest in expansion periods and for bonds with maturities of 10–20 years.
Original language | English |
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Journal | Journal of Financial Economics |
Volume | 135 |
Issue number | 3 |
Pages (from-to) | 577-601 |
Number of pages | 25 |
ISSN | 0304-405X |
DOIs | |
Publication status | Published - Mar 2020 |
Bibliographical note
Available online July 19 2019Keywords
- Credit spreads
- LBO risk
- Leveraged buyouts
- Structural models