Loan amendments and capital structure

Susanne Espenlaub, Arif Khurshed and Anna Neufeld

International Review of Financial Analysis, 2025, vol. 102, issue C

Abstract: We study amendments of loan contracts and find that loan amendments (LAs) help firms move towards their target capital structures. LAs incur lower transaction costs than new loans or bond issues. Using data on 10,375 LAs of large, US corporations during 1996–2016, we find that LA firms accelerate their speed of adjustment towards target leverage up to 24 months post-LA. This is most pronounced for under-levered firms. Amendments to loan maturity and covenants have the strongest impact. Our results are robust to using alternative definitions of leverage, leverage targets, loan events, and various econometric specifications including placebo and treatment-effect models.

Keywords: Bank loan; Syndicated loans; Capital structure; Covenants; Credit agreements; Loan amendment; Renegotiation; Private debt; Speed of adjustment; Target leverage; Financial intermediation (search for similar items in EconPapers)
JEL-codes: G20 G21 G30 G32 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:102:y:2025:i:c:s1057521925000110

DOI: 10.1016/j.irfa.2025.103924

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