• Media type: E-Book
  • Title: Private Equity and Debt Contract Enforcement : Evidence from Covenant Violations
  • Contributor: Haque, Sharjil [VerfasserIn]; Kleymenova, Anya [VerfasserIn]
  • imprint: [S.l.]: SSRN, 2023
  • Extent: 1 Online-Ressource (68 p)
  • Language: English
  • DOI: 10.2139/ssrn.4361582
  • Identifier:
  • Keywords: Private Equity ; Covenant Violations ; Debt Contract Enforcement ; Distressed Borrowers ; Syndicated Loans ; Covenants ; Debt Flexibility ; Financial Flexibility
  • Origination:
  • Footnote: Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments February 1, 2023 erstellt
  • Description: We document the importance of a financial sponsor when a borrower violates a covenant, providing creditors the opportunity to enforce debt contracts. We identify private-equity (PE) sponsored borrowers in the Shared National Credit Program (SNC) data and find PE-sponsored borrowers violate covenants more often than comparable non-PE borrowers. Yet, compared to non-PE, PE-backed borrowers experience smaller reductions in credit commitment upon violation, suggesting lenders are lenient with PE sponsors. Moreover, this leniency is stronger among financially healthier lenders. We show that our results are consistent with a repeated-deals mechanism, as lenders frequently interact with financial sponsors and choose to preserve relationship rent. Consistent with this mechanism, we find little evidence that PE-sponsored loans eventually underperform relative to non-PE-sponsored ones following covenant violations. Our findings have important implications for understanding heterogeneity in debt contract enforcement and credit constraints faced by distressed borrowers with financial sponsors
  • Access State: Open Access