Sponsor Reputation and Capital Structure Dynamics in Leveraged Buyouts

Sophie Shive () and Margaret Forster ()
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Sophie Shive: Mendoza College of Business, University of Notre Dame, Notre Dame, Indiana 46556
Margaret Forster: Mendoza College of Business, University of Notre Dame, Notre Dame, Indiana 46556

Management Science, 2025, vol. 71, issue 7, 5849-5874

Abstract: We examine whether leveraged buyout (LBO) sponsors’ reputations as borrowers affect the refinancing terms of their portfolio companies. In 510 U.S. LBOs for which we can reconstruct debt financing activity, 67% of financing events occur one quarter before the earliest existing debt maturity. These On Time events generally improve borrowing terms, whereas Early events feature more dividends, leverage, and higher cost. In each case, dividend issuance decreases and cost increases with the proportion of the sponsors’ recent exits that are failures. Effects are absent for matched firms and prior to the LBO and are procyclical; sponsors with recent failures miss opportunities to decrease financing costs in good times.

Keywords: leveraged buyout; borrower reputation; private equity (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:71:y:2025:i:7:p:5849-5874

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