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Leveraged buyouts and bond credit spreads

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  • Eisenthal-Berkovitz, Yael
  • Feldhütter, Peter
  • Vig, Vikrant

Abstract

Recent decades have witnessed several waves of buyout activity. We find leveraged buyouts (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, 21 basis points higher than those on same-firm bonds with such covenants, and c) structural models calibrated to historical LBO events imply an impact of 18–21 basis points on 10-year credit spreads. The impact is strongest in expansion periods and for bonds with maturities of 10–20 years.

Suggested Citation

  • Eisenthal-Berkovitz, Yael & Feldhütter, Peter & Vig, Vikrant, 2020. "Leveraged buyouts and bond credit spreads," Journal of Financial Economics, Elsevier, vol. 135(3), pages 577-601.
    • Handle: RePEc:eee:jfinec:v:135:y:2020:i:3:p:577-601
    DOI: 10.1016/j.jfineco.2019.07.007
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    More about this item

    Keywords

    Credit spreads; LBO risk; Structural models; Leveraged buyouts;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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