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

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
313
Abstract Views
2,295
Rank
176,825
PlumX Metrics