Leveraged Buyouts and Bond Credit Spreads

Peter Feldhütter*, Yael Eisenthal-Berkovitz, Vikrant Vig

*Corresponding author for this work

Research output: Contribution to journalJournal articleResearchpeer-review

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 languageEnglish
JournalJournal of Financial Economics
Volume135
Issue number3
Pages (from-to)577-601
Number of pages25
ISSN0304-405X
DOIs
Publication statusPublished - Mar 2020

Bibliographical note

Available online July 19 2019

Keywords

  • Credit spreads
  • LBO risk
  • Leveraged buyouts
  • Structural models

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