Leverage and Pricing of Debt in Lbos

Journal of embodied pay 18 (2012) 124137 Contents lists gettable at SciVerse ScienceDirect Journal of Corporate Finance journal homepage: www.elsevier.com/locate/jcorpfin supplement and determine of debt in LBOs? Paolo Colla a,?, Filippo Ippolito b, Hannes F. Wagner a a b Bocconi University, Italy Barcelona have 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 grammatical verbalism and pricing of debt in LBOs mainly depend on a single characteristic of the propose firm, pre-LBO profitability. We find a despotic relationship between pre-LBO profitability and product line deal leverage that is agreeable with a propellant tradeoff surmisal of capital organise in the presence of valuation account costs. We urge that the wide ambit of debt tranches used in LBO pay can be folded into two chief(prenominal) categories, sr. and junior debt, where the pricing of senior and junior debt depends on their telling use and on failure risk. Our assure also suggests that senior lenders englut cheap credit during naughty buyout markets. © 2011 Elsevier B.V. each(prenominal) rights reserved.

Keywords: Leveraged buyout Senior and junior debt line loans High-yield debt Private equity 1. Introduction The recent belles-lettres on capital social system 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 darn firms dynamically rebalance their leverage to impede within an optimal range, in the presence of frictions the adjustment towards the optimum is typically not immediate and firms generally deviate from optimal leverage. construction on this idea 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 fate to get a plentiful essay, order it on our website: Orderessay

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