Leverage and Pricing of Debt in Lbos

Journal of Corporate Finance 18 (2012) 124137 Contents lists adheretable at SciVerse ScienceDirect Journal of Corporate Finance journal homepage: www.elsevier.com/ reconcile/jcorpfin supplement and pricing of debt in LBOs? Paolo Colla a,?, Filippo Ippolito b, Hannes F. Wagner a a b Bocconi University, Italy Barcelona Graduate School of Economics, Universitat Pompeu Fabra, Catalonia?Spain article info Available online 9 November 2011 JEL classification: G30 G32 G34 abstract We show that the structure and pricing of debt in LBOs largely depend on a single singularity of the indicate firm, pre-LBO profitability. We find a positive relationship in the midst of pre-LBO profitability and business deal leverage that is consistent with a dynamic trade-off surmisal of capital structure in the presence of adjustment costs. We urge that the wide range of debt tranches employ in LBO financing can be folded into two primary(prenominal) categories, sr. and junior debt, where the pricing of senior and junior debt depends on their relative use and on bankruptcy risk. Our assure similarly suggests that senior lenders oversupply cheap credit during hot buyout markets. © 2011 Elsevier B.V. each(prenominal) rights reserved.

Keywords: Leveraged buyout ripened and junior debt Term loans High-yield debt Private equity 1. Introduction The new-fangled writings on capital structure argues that firms adjust leverage infrequently because of adjustments costs associated with changes in leverage. 1 Leary and Roberts (2005), Flannery and Rangan (2006), and Lemmon et al. (2008) show that age firms dynamically rebalance their leverage to freeze within an optimal range,! in the presence of frictions the adjustment towards the optimum is typically not flying and firms generally deviate from optimal leverage. construction on this liking and on the theories of dynamic capital structure (Fischer et al. (1989), Leland (1998), Goldstein et al. (2001)), Strebulaev (2007) argues that because cross-sectional...If you necessity to get a full essay, order it on our website: OrderEssay.net

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