Structure and determinants of financial covenants in leveraged buyouts

We use a proprietary dataset to explore (i) the financial cove nant structure and (ii) the determinants of their restrictiveness in levera ged buyouts. With respect to (i) we find that the covenant structure is more standardized in s ponsored than in non-sponsored loans: the former show less variation in the in cluded types and combinations of covenants and include more financial covenants than the latter. With resp ect to (ii) we measure financial covenant restrictiveness precisely as th e distance between threshold and financial forecast. We show that two competing mechanisms, reduced in formation asymmetry costs and increased financial risk, affect the restri ctiveness in sponsored loans.     «

We use a proprietary dataset to explore (i) the financial cove nant structure and (ii) the determinants of their restrictiveness in levera ged buyouts. With respect to (i) we find that the covenant structure is more standardized in s ponsored than in non-sponsored loans: the former show less variation in the in cluded types and combinations of covenants and include more financial covenants than the latter. With resp ect to (ii) we measure financial covenant restrictiveness precisely as th e dist...     »