Structure and Determinants of Financial Covenants in Leveraged Buyouts

Review of Finance, 2011 (First Published Online March 1, 2011)

53 Pages Posted: 14 Dec 2009 Last revised: 22 Jul 2011

See all articles by Ann‐Kristin Achleitner

Ann‐Kristin Achleitner

Technische Universität München - Center for Entrepreneurial and Financial Studies

Reiner Braun

Technische Universität München (TUM) - TUM School of Management

Bastian Hinterramskogler

Technische Universität München - Center for Entrepreneurial and Financial Studies (CEFS)

Florian Tappeiner

Technische Universität München - Center for Entrepreneurial and Financial Studies

Date Written: August 20, 2010

Abstract

We use a proprietary dataset to explore (i) the financial covenant structure and (ii) the determinants of their restrictiveness in leveraged buyouts. With respect to (i) we find that the covenant structure is more standardized in sponsored than in non-sponsored loans: the former show less variation in the included types and combinations of covenants and include more financial covenants than the latter. With respect to (ii) we measure financial covenant restrictiveness precisely as the distance between threshold and financial forecast. We show that two competing mechanisms, reduced information asymmetry costs and increased financial risk, affect the restrictiveness in sponsored loans.

Keywords: Financial covenants, leveraged buyouts, financing structure, control rights

JEL Classification: G21, G24, G32, G34

Suggested Citation

Achleitner, Ann-Kristin and Braun, Reiner and Hinterramskogler, Bastian and Tappeiner, Florian, Structure and Determinants of Financial Covenants in Leveraged Buyouts (August 20, 2010). Review of Finance, 2011 (First Published Online March 1, 2011). Available at SSRN: https://ssrn.com/abstract=1523264

Ann-Kristin Achleitner

Technische Universität München - Center for Entrepreneurial and Financial Studies ( email )

Arcisstr. 21
Munich, D-80290
Germany
+49 89 289 25181 (Phone)

Reiner Braun

Technische Universität München (TUM) - TUM School of Management ( email )

Arcisstr. 21
Munich, Deutschland 80333
Germany
+498928925181 (Phone)
+498928925188 (Fax)

HOME PAGE: http://www.ef.wi.tum.de/

Bastian Hinterramskogler

Technische Universität München - Center for Entrepreneurial and Financial Studies (CEFS) ( email )

Arcisstr. 21
Munich, 80333
Germany

Florian Tappeiner (Contact Author)

Technische Universität München - Center for Entrepreneurial and Financial Studies ( email )

Arcisstr. 21
Munich, 80333
Germany

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