The Private Equity Advantage: Leveraged Buyout Firms and Relationship Banking

EFA 2008 Athens Meetings Paper

Review of Financial Studies, 24 (7), 2462-2498, 2011

60 Pages Posted: 29 Feb 2008 Last revised: 15 Feb 2018

See all articles by Victoria Ivashina

Victoria Ivashina

Harvard University; National Bureau of Economic Research (NBER)

Anna Kovner

Federal Reserve Bank of New York

Date Written: April 5, 2010


This paper examines the impact of leveraged buyout firms’ bank relationships on the terms of their syndicated loans. Using a sample of 1,590 loans financing private equity sponsored leveraged buyouts between 1993 and 2005, we find that bank relationships are an important factor in explaining cross-sectional variation in the loan interest rate and covenant structure. Our results indicate that two channels allow leveraged buyouts sponsored by private equity firms to receive favorable loan terms. First, bank relationships formed through repeated interactions reduce inefficiencies from information asymmetry. Second, banks price loans to cross-sell other fee business. These effects are additive. A one standard deviation increase in both bank relationship strength and cross-selling potential is associated with a 17 basis point (5%) decrease in spread and a 0.4 point (7%) increase in the maximum debt to EBITDA covenant. This translates to as much as a 4 percentage point increase in equity return to the leveraged buyout firm.

Keywords: Private equity; leveraged buyouts; bank debt; relationship banking

JEL Classification: G20, G21, G23, G24, G32

Suggested Citation

Ivashina, Victoria and Kovner, Anna, The Private Equity Advantage: Leveraged Buyout Firms and Relationship Banking (April 5, 2010). EFA 2008 Athens Meetings Paper. Available at SSRN: or

Victoria Ivashina (Contact Author)

Harvard University ( email )

Harvard Business School
Baker Library 233
Boston, MA 02163
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Anna Kovner

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

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