Structure and determinants of financial covenants in leveraged buyouts

Ann Kristin Achleitner, Reiner Braun, Bastian Hinterramskogler, Florian Tappeiner

Research output: Contribution to journalReview articlepeer-review

13 Scopus citations

Abstract

The authors use proprietary loan contracts and financial information negotiated between banks and private equity sponsors to explore the financial covenant structure and the determinants of covenant restrictiveness in a large set of leveraged buyouts. With respect to the covenant structure, we analyze the utilized types of financial covenants in sponsored loans and in comparable nonsponsored loans, such as highly levered term loans or loans used toward M&A. The authors find that sponsored loans show less variation in the included types and combinations of covenants and include more financial covenants than the comparable nonsponsored loans. With respect to covenant restrictiveness, the authors measure precisely the distance between threshold and financial forecast. They show that two competing mechanisms, reduced information asymmetry costs and increased financial risk, affect the restrictiveness in sponsored loans.

Original languageEnglish
Pages (from-to)647-684
Number of pages38
JournalReview of Finance
Volume16
Issue number3
DOIs
StatePublished - Jul 2012

Fingerprint

Dive into the research topics of 'Structure and determinants of financial covenants in leveraged buyouts'. Together they form a unique fingerprint.

Cite this