Sponsor reputation and capital structure dynamics in leveraged buyouts

55 Pages Posted: 18 Feb 2021 Last revised: 6 Feb 2023

See all articles by Sophie Shive

Sophie Shive

University of Notre Dame - Department of Finance

Margaret Forster

University of Notre Dame

Date Written: March 1, 2022

Abstract

We examine whether LBO sponsors’ reputations as borrowers affect the refinancing terms of their portfolio companies. In 515 U.S. LBOs for which we can reconstruct debt financing activity throughout the holding period, 66% of financing events occur one quarter before the earliest existing debt maturity. These reasonably exogenous On Time events generally improve borrowing terms while Early events feature more dividends, leverage, and higher cost. In both cases, dividend issuance decreases and cost increases with the proportion of recent failures among the sponsor’s other holdings. Effects are procyclical; sponsors with recent failures miss opportunities to decrease costs in good times.

Keywords: Leveraged buyout, capital structure, reputation

JEL Classification: G23, G24, G31, G32, G34

Suggested Citation

Shive, Sophie and Forster, Margaret, Sponsor reputation and capital structure dynamics in leveraged buyouts (March 1, 2022). Available at SSRN: https://ssrn.com/abstract=3781879 or http://dx.doi.org/10.2139/ssrn.3781879

Sophie Shive (Contact Author)

University of Notre Dame - Department of Finance ( email )

P.O. Box 399
Notre Dame, IN 46556-0399
United States

Margaret Forster

University of Notre Dame ( email )

361 Mendoza College of Business
Notre Dame, IN 46556-5646
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
116
Abstract Views
707
Rank
362,863
PlumX Metrics