Leveraged buyouts and bond credit spreads

Yael Eisenthal-Berkovitz, Peter Feldhütter and Vikrant Vig

Journal of Financial Economics, 2020, vol. 135, issue 3, 577-601

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.

Keywords: Credit spreads; LBO risk; Structural models; Leveraged buyouts (search for similar items in EconPapers)
JEL-codes: G12 G34 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:135:y:2020:i:3:p:577-601

DOI: 10.1016/j.jfineco.2019.07.007

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