Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments September 14, 2020 erstellt
Description:
Reputational capital is a frequently cited attribute of private equity transactions. In this paper we construct a simple model to illustrate the relationship between reputational capital, covenants and loan spreads in the leveraged loan market. Our model predicts that reliance on reputational capital varies inversely with a sponsor's past loan performance and the efficiency of the enforcement formal contracts terms. Our model also predicts that for sponsored deals, spreads will be lower on Cov-Lite loans than loans with maintenance covenants. Using a large sample of leveraged loans originated between 2005 and 2018, we find evidence consistent with these predictions