Securities Laws, Bank Monitoring, and the Choice between Cov-Lite Loans and Bonds for Highly Levered

83 Pages Posted: 23 Jan 2019 Last revised: 1 Feb 2023

See all articles by Robert Prilmeier

Robert Prilmeier

Tulane University - A.B. Freeman School of Business

René Stulz

Ohio State University (OSU) - Fisher College of Business

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Date Written: January 2019

Abstract

In contrast to bonds, cov-lite loans do not require SEC registration and are not subject to securities laws. We show that this distinction plays an important role in firms’ choice between funding through cov-lite loans and bonds and helps understand why the market share of cov-lite loans has been so high in recent normal times. Compared to cov-heavy loans, cov-lite loans are closer substitutes for bonds in that they have similar covenants, have tighter bid-ask spreads, have more trading, and are more likely to be used to refinance bonds than cov-heavy loans.

Suggested Citation

Prilmeier, Robert and Stulz, René, Securities Laws, Bank Monitoring, and the Choice between Cov-Lite Loans and Bonds for Highly Levered (January 2019). NBER Working Paper No. w25467, Available at SSRN: https://ssrn.com/abstract=3319693

Robert Prilmeier (Contact Author)

Tulane University - A.B. Freeman School of Business ( email )

7 McAlister Drive
New Orleans, LA 70118
United States

René Stulz

Ohio State University (OSU) - Fisher College of Business ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

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