Covenant Design in Financial Contracts: A Case Study of the Private Equity Acquisition of HCA

International Journal of Strategic Property Management, Volume 19, Issue 4, 2015

The Chinese University of Hong Kong Faculty of Law Research Paper No. 2015-16

12 Pages Posted: 28 Dec 2015 Last revised: 19 Sep 2019

See all articles by Tzu-Wen Wei

Tzu-Wen Wei

National Taiwan University - Graduate Institute of Business Administration

Jyh-An Lee

The Chinese University of Hong Kong (CUHK) - Faculty of Law

Chi-Jui Huang

National Taipei University

Tse-Ping Dong

National Taiwan Normal University

Date Written: December 27, 2015

Abstract

A buyout deal involves several parties, including private equity firms, the target company, and lending banks. All these parties are legally connected by contractual arrangements, and covenants among all interest parties are important. However, a comprehensive study on designing covenants among parties in a buyout deal to achieve commitment and avoid risk in closing a deal is seldom seen in current literature. By investigating one of the world’s largest buyout deals – the acquisition of Hospital Corporation of America (HCA), this paper not only probes into the design of contracts and covenant, but also provides several managerial implications. This paper concludes that well-designed covenants in buy-out deals can appropriately align all participants’ diversified interests.

Keywords: private equity; leveraged buyout; covenants; acquisition; financial contracts

Suggested Citation

Wei, Tzu-Wen and Lee, Jyh-An and Huang, Chi-Jui and Dong, Tse-Ping, Covenant Design in Financial Contracts: A Case Study of the Private Equity Acquisition of HCA (December 27, 2015). International Journal of Strategic Property Management, Volume 19, Issue 4, 2015, The Chinese University of Hong Kong Faculty of Law Research Paper No. 2015-16, Available at SSRN: https://ssrn.com/abstract=2708682

Tzu-Wen Wei

National Taiwan University - Graduate Institute of Business Administration ( email )

Jyh-An Lee (Contact Author)

The Chinese University of Hong Kong (CUHK) - Faculty of Law ( email )

6/F, Lee Shau Kee Building
Shatin, New Territories
Hong Kong

Chi-Jui Huang

National Taipei University ( email )

Dept. of Finance
Taipei, Taiwan 100
Taiwan

Tse-Ping Dong

National Taiwan Normal University ( email )

No. 162, Section 1
Heping East Road
Taipei City, Da’an District 106
Taiwan

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