Leveraged Buyouts and Bond Credit Spreads

53 Pages Posted: 23 Aug 2016 Last revised: 18 Nov 2018

See all articles by Yael Eisenthal-Berkovitz

Yael Eisenthal-Berkovitz

Columbia University - Columbia Business School

Peter Feldhütter

Copenhagen Business School

Vikrant Vig

London Business School

Date Written: February 20, 2017

Abstract

Recent decades have witnessed several waves of buyout activity. We find LBOs to be a significant concern for bondholders by showing that a) intra-industry credit spreads increase upon an LBO announcement, b) yields on bonds without event risk covenants are, on average, 21bps higher than those on same-firm bonds with such covenants and c) structural models calibrated to historical LBO events imply an impact of 18-21bps on 10-year credit spreads. The impact is strongest in expansion periods and for bonds with maturities of 10-20 years.

Keywords: Credit Spreads, LBO risk, Structural Models, Leveraged Buyouts

JEL Classification: G12, G34

Suggested Citation

Eisenthal-Berkovitz, Yael and Feldhütter, Peter and Vig, Vikrant, Leveraged Buyouts and Bond Credit Spreads (February 20, 2017). Columbia Business School Research Paper No. 16-57. Available at SSRN: https://ssrn.com/abstract=2827116 or http://dx.doi.org/10.2139/ssrn.2827116

Yael Eisenthal-Berkovitz

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

Peter Feldhütter (Contact Author)

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

Vikrant Vig

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

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