Victoria Ivashina
Associate Professor of Business Administration, Hellman Faculty Fellow
Victoria Ivashina is an Associate Professor in the Finance Unit of the Harvard Business School, and a faculty research fellow at the National Bureau of Economic Research. Currently, Professor Ivashina develops and teaches a course on Private Equity Finance in the second year of the MBA program. Her research is in the area of applied corporate finance with a primary focus on credit markets and private equity. Professor Ivashina has made numerous presentations to academic and practitioner audiences. Her research has appeared in in leading academic journals including Journal of Financial Economics, The Review of Financial Studies, and The American Economic Review, and been covered in several media outlets including The Economist, The Wall Street Journal, and Financial Times. She was awarded Harvard Business School’s Berol Fellowship and Hellman Family Fellowship for research excellence. Professor Ivashina holds a Ph.D. in Finance from the Leonard N. Stern School of Business, New York University and a B.A. in Economics from Pontificia Universidad Católica del Perú.
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Article
| Review of Financial Studies
| Forthcoming
Unstable Equity: Combining Banking with Private Equity Investing
Lily H. Fang, Victoria Ivashina and Josh Lerner
Bank-affiliated private equity groups account for 30% of all private equity investments. Their market share is highest during peaks of the private equity market, when the parent banks arrange more debt financing for in-house transactions yet have the lowest exposure to debt. Using financing terms and ex-post performance, we show that overall banks do not make superior equity investments to those of standalone private equity groups. Instead, they appear to expand their private equity engagement to take advantage of the credit market booms while capturing private benefits from cross-selling of other banking services.
Keywords: leveraged buyouts;
private equity;
banks and banking;
banking industry;
regulation;
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Article
| Journal of Financial Economics
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Securitization without Adverse Selection: The Case of CLOs
Effi Benmelech, Jennifer Dlugosz and Victoria Ivashina
In this paper, we investigate whether securitization was associated with risky lending in the corporate loan market by examining the performance of individual loans held by CLOs. We employ two different datasets that identify loan holdings for a large set of CLOs and find that adverse selection problems in corporate loan securitizations are less severe than commonly believed. Using a battery of performance tests, we find that loans securitized before 2005 performed no worse than comparable unsecuritized loans originated by the same bank. Even loans originated by the bank that acts as the CLO underwriter do not show underperformance relative to the rest of the CLO portfolio. While there is some evidence of underperformance for securitized loans originated between 2005 and 2007, it is not consistent across samples, performance measures, and horizons. Overall, we argue that the securitization of corporate loans is fundamentally different from securitization of other asset classes because securitized loans are fractions of syndicated loans. Therefore, mechanisms used to align incentives in a lending syndicate are likely to reduce adverse selection in the choice of CLO collateral.
Keywords: Personal Finance;
Performance;
Markets;
Banks and Banking;
Debt Securities;
Investment Portfolio;
Financing and Loans;
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Article
| Review of Financial Studies
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The Private Equity Advantage: Leveraged Buyout Firms and Relationship Banking
Victoria Ivashina and Anna Kovner
This paper examines the impact of leveraged buyout firms' bank relationships on the terms of their syndicated loans. Using a sample of 1,590 loans financing private equity sponsored leveraged buyouts between 1993 and 2005, we find that bank relationships are an important factor in explaining cross-sectional variation in the loan interest rate and covenant structure. Our results indicate that two channels allow leveraged buyouts sponsored by private equity firms to receive favorable loan terms. First, bank relationships formed through repeated interactions reduce inefficiencies from information asymmetry. Second, banks price loans to cross-sell other fee business. These effects are additive. A one standard deviation increase in both bank relationship strength and cross-selling potential is associated with a 17 basis point (5%) decrease in spread and a 0.4 point (7%) increase in the maximum debt to EBITDA covenant. This translates to as much as a 4 percentage point increase in equity return to the leveraged buyout firm.
Keywords: Leveraged Buyouts;
Private Equity;
Banks and Banking;
Financing and Loans;
Interest Rates;
Investment Return;
Relationships;
Banking Industry;
Financial Services Industry;
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Article
| Journal of Financial Economics
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Institutional Stock Trading on Loan Market Information
Victoria Ivashina and Zheng Sun
Over the past decade, one of the most important developments in the corporate loan market has been the increasing participation of institutional investors in lending syndicates. As lenders, institutional investors routinely receive private information about borrowers. However, most of these investors also trade in public securities. This leads to a controversial question: do institutional investors use private information received in the loan market to trade in public securities? In this paper, we examine the stock trading of institutional investors that also hold loans in their portfolio. Specifically, we look at the abnormal returns on stock trades following loan renegotiations. By collecting SEC filings of loan amendments, we are able to identify institutional investors that had access to private information disclosed by the borrower during loan renegotiations. Our results indicate that institutional managers that participate in loan renegotiations consequently trade in stock of the same company and outperform other managers by approximately 8.8% in annualized terms in the month following loan renegotiation.
Keywords: Stocks;
Financing and Loans;
Negotiation;
Investment Portfolio;
Investment Return;
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Journal Article
| Journal of Financial Economics
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Institutional Demand Pressure and the Cost of Corporate Loans
Victoria Ivashina and Zheng Sun
Between 2001 and 2007, annual institutional funding in highly leveraged loans went up from $32 billion to $426 billion, accounting for nearly 70% of the jump in total syndicated loan issuance over the same period. Did the inflow of institutional funding in the syndicated loan market lead to mispricing of credit? To understand this relation, we look at the institutional demand pressure defined as the number of days a loan remains in syndication. Using market-level and cross-sectional variation in time on the market, we find that a shorter syndication period is associated with a lower final interest rate. The relation is robust to the use of institutional fund flow as an instrument. Furthermore, we find significant price differences between institutional investors' tranches and banks' tranches on the same loans, even though they share the same underlying fundamentals. Increasing demand pressure causes the interest rate on institutional tranches to fall below the interest rate on bank tranches. Overall, a one standard deviation reduction in average time on the market decreases the interest rate for institutional loans by over 30 basis points per annum. While this effect is significantly larger for loan tranches bought by structured investment vehicles (e.g., CDOs), it is not fully explained by their role.
Keywords: Leveraged Buyouts;
Financial Crisis;
Credit;
Debt Securities;
Financing and Loans;
Interest Rates;
Investment;
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Article
| Journal of Financial Economics
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Bank Lending During the Financial Crisis of 2008
Victoria Ivashina and David S. Scharfstein
This paper documents that new loans to large borrowers fell by 47% during the peak period of the financial crisis (fourth quarter of 2008) relative to the prior quarter and by 79% relative to the peak of the credit boom (second quarter of 2007). New lending for real investment (such as working capital and capital expenditures) fell by only 14% in the last quarter of 2008 but contracted nearly as much as new lending for restructuring (LBOs, M&A, share repurchases) relative to the peak of the credit boom. After the failure of Lehman Brothers in September 2008 there was a run by short-term bank creditors, making it difficult for banks to roll over their short-term debt. We document that there was a simultaneous run by borrowers who drew down their credit lines, leading to a spike in commercial and industrial loans reported on bank balance sheets. We examine whether these two stresses on bank liquidity led them to cut lending. In particular, we show that banks cut their lending less if they had better access to deposit financing, and thus they were not as reliant on short-term debt. We also show that banks that were more vulnerable to credit line drawdowns because they co-syndicated more of their credit lines with Lehman Brothers reduced their lending to a greater extent.
Keywords: Financial Liquidity;
Financing and Loans;
Credit;
Borrowing and Debt;
Financial Crisis;
Banking Industry;
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Article
| American Economic Review: Papers and Proceedings
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Loan Syndication and Credit Cycles
Victoria Ivashina and David Scharfstein
Cyclicality in the supply of business credit has been the focus of a considerable amount of research. This cyclicality can stem from shocks to borrowers' collateral, which affect firms' ability to raise capital if agency and information problems are significant (Ben S. Bernanke and Mark Gertler, 1989). Or it can stem from shocks to bank capital, which affects the supply of bank loans if agency and information problems limit the ability of banks to raise additional capital (Bernanke, 1983). In this paper, we examine cyclicality in the supply of credit in the context of modern forms of banking, often referred to as the "originate-to-distribute" model. In particular, we focus on the role of syndicated lending.
Keywords: Business Cycles;
Capital;
Credit;
Banks and Banking;
Financing and Loans;
System Shocks;
Financial Services Industry;
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Article
| Journal of Financial Economics
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Asymmetric Information Effects on Loan Spreads
Victoria Ivashina
The paper estimates the cost arising from information asymmetry between the lead bank and members of the lending syndicate. In a lending syndicate, the lead bank retains only a fraction of the loan but acts as the intermediary between the borrower and the syndicate participants. Theory predicts that private information in the hands of the lead bank will cause syndicate participants to demand a higher interest rate and that a large loan ownership by the lead bank should reduce asymmetric information and the related premium. Nevertheless, the estimated OLS relation between the loan spread and the lead bank’s share is positive. This result, however, ignores the fact that we only observe equilibrium outcomes and, therefore, the asymmetric information premium demanded by participants is offset by the diversification premium demanded by the lead bank. Using exogenous shifts in the credit risk of the lead bank’s loan portfolio as an instrument, I measure the asymmetric information effect of the lead’s share on the loan spread and find that it has a large economic cost, accounting for approximately 4 percent of the total cost of credit.
Keywords: Cost;
Banks and Banking;
Financing and Loans;
Interest Rates;
Capital;
Investment Portfolio;
Credit;
Diversification;
Risk and Uncertainty;
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Article
| Review of Financial Studies
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Bank Debt and Corporate Governance
Victoria Ivashina, Vinay Nair, Anthony Saunders, Nadia Massoud and Roger Stover
In this paper, we investigate the disciplining role of banks and bank debt in the market for corporate control. We find that relationship bank lending intensity and bank client network have positive effects on the probability of a borrowing firm becoming a target. This effect is enhanced in cases where the target and acquirer have a relationship with the same bank. Moreover, we utilize an experiment to show that the effects of relationship bank lending intensity on takeover probability are not driven by endogeneity. Finally, we also investigate reasons motivating a bank’s informational role in the market for corporate control.
Keywords: Corporate Governance;
Borrowing and Debt;
Banks and Banking;
Business and Stakeholder Relations;
Governance Controls;
Managerial Roles;
Citation: Ivashina, Victoria, Vinay Nair, Anthony Saunders, Nadia Massoud, and Roger Stover. " Bank Debt and Corporate Governance." Review of Financial Studies 22, no. 1 (2008): 41–77.
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Working Paper
| HBS Working Paper Series
| 2011
Cyclicality of Credit Supply: Firm Level Evidence
Bo Becker and Victoria Ivashina
Theory predicts that there is a close link between bank credit supply and the evolution of the business cycle. Yet fluctuations in bank-loan supply have been hard to quantify in the time-series. While loan issuance falls in recessions, it is not clear if this is due to demand or supply. We address this question by studying firms' substitution between bank debt and non-bank debt (public bonds) using firm-level data. Any firm that raises new debt must have a positive demand for external funds. Conditional on issuance of new debt, we interpret firm's switching from loans to bonds as a contraction in bank credit supply. We find strong evidence of substitution from loans to bonds at times characterized by tight lending standards, high levels of non-performing loans and loan allowances, low bank share prices and tight monetary policy. The bank-to-bond substitution can only be measured for firms with access to bond markets. However, we show that this substitution behavior has strong predictive power for bank borrowing and investments by small, out-of-sample firms. We consider and reject several alternative explanations of our findings.
Keywords: Business Cycles;
Borrowing and Debt;
Credit;
Banks and Banking;
Bonds;
Financial Markets;
Financing and Loans;
Banking Industry;
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Working Paper
| 2011
The Ownership and Trading of Debt Claims in Chapter 11 Restructurings
Victoria Ivashina, Benjamin Iverson and David C. Smith
What is the ownership structure of bankrupt debt claims? How does the ownership evolve though bankruptcy? And how does debt ownership influence Chapter 11 outcomes? To answer these questions, we construct a data set that identifies the entire capital structure for 136 companies filing for U.S. Chapter 11 bankruptcy protection between 1998 and 2009 and that covers over 71,000 different investors. We categorize the investors in the capital structure of bankrupt firms according to their institutional type and track them from the initial filing until the vote on the plan of reorganization. We document several novel facts about the role of different institutional investors, the impact of debt ownership concentration, and the role of trading in bankruptcy. We find that trading during the case leads to higher concentration of ownership, particularly among debt claims that are eligible to vote on the bankruptcy plan of reorganization. Active investors, including hedge funds, are the largest net buyers of claims in bankruptcy. While initial ownership concentration is important for coordination of a prearranged bankruptcy filing, it is consolidation of ownership during bankruptcy—and specifically consolidation of ownership of voting classes—that has an impact on the speed of restructuring, the probability of liquidation, and class-level as well as overall recovery rates.
Keywords: ownership structure;
distressed debt;
trading in bankruptcy;
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Working Paper
| HBS Working Paper Series
| 2012
Reaching for Yield in the Bond Market
Bo Becker and Victoria Ivashina
Reaching-for-yield—the propensity to buy riskier assets in order to achieve higher yields—is believed to be an important factor contributing to the credit cycle. This paper analyses this phenomenon in the corporate bond market. Specifically, we show evidence for reaching for yield among insurance companies, the largest institutional holders of corporate bonds. Insurance companies have capital requirements tied to the credit ratings of their investments. Conditional on ratings, insurance portfolios are systematically biased toward higher yield, higher CDS bonds. This behavior appears to be related to the business cycle, being most pronounced during economic expansions. It is also more pronounced for the insurance firms for which regulatory capital requirements are more binding. The results hold both at issuance and for trading in the secondary market and are robust to a series of bond and issuer controls, including issuer fixed effects as well as liquidity and duration. Comparison of the ex-post performance of bonds acquired by insurance companies does not show outperformance, but higher volatility of realized returns.
Keywords: fixed income;
Reaching for yield;
financial intermediation;
insurance companies;
Insurance;
Bonds;
Assets;
Risk Management;
Investment Return;
Investment Portfolio;
Insurance Industry;
Citation: Becker, Bo, and Victoria Ivashina. " Reaching for Yield in the Bond Market." Harvard Business School Working Paper, No. 12–103, May 2012. (Revised December 2012. NBER Working Paper Series, No. 18909, March 2013)
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Working Paper
| 2012
The Disintermediation of Financial Markets: Direct Investing in Private Equity
Lily Fang, Victoria Ivashina and Josh Lerner
One of the important issues in corporate finance is the role of financial intermediaries. In the private equity setting, institutional investors are increasingly eschewing intermediaries in favor of direct investments. To understand the trade-offs at work in this setting, we compiled proprietary dataset of direct investments from seven large institutional investors. We find that solo investments by institutions outperform co-investments and a wide-range of benchmarks for traditional private equity partnership investments. We also find that the outperformance is driven by deals where informational problems are not too great, such as more proximate transactions to the investor and later-stage deals, and by an ability to avoid the deleterious effects on returns often seen in periods with large inflows into the private equity market.
Keywords: financial intermediation;
private equity;
direct investment;
co-investment;
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Working Paper
| HBS Working Paper Series
| 2012
Dollar Funding and the Lending Behavior of Global Banks
Victoria Ivashina, David S. Scharfstein and Jeremy C. Stein
A large share of dollar-denominated lending is done by non-U.S. banks, particularly European banks. We present a model in which such banks cut dollar lending more than euro lending in response to a shock to their credit quality. Because these banks rely on wholesale dollar funding, while raising more of their euro funding through insured retail deposits, the shock leads to a greater withdrawal of dollar funding. Banks can borrow in euros and swap into dollars to make up for the dollar shortfall, but this may lead to violations of covered interest parity (CIP) when there is limited capital to take the other side of the swap trade. In this case, synthetic dollar borrowing becomes expensive, which causes cuts in dollar lending. We test the model in the context of the Eurozone sovereign crisis, which escalated in the second half of 2011 and resulted in U.S. money-market funds sharply reducing the funding provided to European banks. Coincident with the contraction in dollar funding, there were significant violations of euro-dollar CIP. Moreover, dollar lending by Eurozone banks fell relative to their euro lending in both the U.S. and Europe; this was not the case for U.S. global banks. Finally, European banks that were more reliant on money funds experienced bigger declines in dollar lending.
Keywords: banks;
global banks;
credit supply;
dollar funding;
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Case
| HBS Case Collection
|
2012
HCA, Inc. LBO Exit
Victoria Ivashina
Keywords: entrepreneurship;
finance;
stockholders;
dividends;
Private Equity;
Initial Public Offering;
Citation: Ivashina, Victoria. " HCA, Inc. LBO Exit." Harvard Business School Case 813-056, November 2012.
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Case
| HBS Case Collection
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2012
TPG China: Daphne International
Victoria Ivashina
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Case
| HBS Case Collection
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2012
(Revised from original 2010 version)
Momentive Performance Materials, Inc.
Victoria Ivashina and David S. Scharfstein
After getting close to violating its loan covenants in 2009, Momentive took a variety of actions over several months to restructure its debt. In particular, in May of 2009, Momentive had exchanged a fraction of its outstanding notes. In November of 2009, it proposed an amendment that sought to extend the maturity on the loan used to finance the Momentive buyout and allow issuance of senior secured notes. The case is set up from the perspective of a hedge fund that holds a fraction of Momentive's syndicated loan. The case serves as a vehicle for discussing contractual differences between public and private debt and challenges in its restructuring.
Keywords: Restructuring;
Financial Crisis;
Borrowing and Debt;
Private Equity;
Financing and Loans;
Citation: Ivashina, Victoria, and David S. Scharfstein. " Momentive Performance Materials, Inc." Harvard Business School Case 210-081, February 2012. (Revised from original June 2010 version.)
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Teaching Note
| HBS Case Collection
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2011
The Sale of Citigroup's Leveraged Loan Portfolio (TN)
Victoria Ivashina and David Scharfstein
Teaching Note for 209080.
Keywords: Financing and Loans;
Investment Portfolio;
Opportunities;
Private Equity;
Disruption;
Credit;
Markets;
Negotiation Deal;
Perspective;
Performance Evaluation;
Banking Industry;
Financial Services Industry;
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Case
| HBS Case Collection
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2010
Restructuring CIT Group (A)
Victoria Ivashina and David S. Scharfstein
Keywords: Debt Securities;
Restructuring;
Financial Services Industry;
Citation: Ivashina, Victoria, and David S. Scharfstein. "Restructuring CIT Group (A)." Harvard Business School Case 211-023, October 2010.
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Supplement
| HBS Case Collection
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2010
Restructuring CIT Group (B)
Victoria Ivashina and David S. Scharfstein
Keywords: Financial Services Industry;
Citation: Ivashina, Victoria, and David S. Scharfstein. "Restructuring CIT Group (B)." Harvard Business School Supplement 211-037, October 2010.
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Teaching Note
| HBS Case Collection
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2010
Rosetree Mortgage Opportunity Fund (TN)
Victoria Ivashina and Andre F. Perold
Teaching Note for [209088].
Keywords: Financial Crisis;
Crisis Management;
Capital;
Mortgages;
Mergers and Acquisitions;
Valuation;
Borrowing and Debt;
Cash Flow;
Bids and Bidding;
Financing and Loans;
Restructuring;
Financial Markets;
United States;
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Case
| HBS Case Collection
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2010
(Revised from original 2008 version)
The Sale of Citigroup's Leveraged Loan Portfolio
Victoria Ivashina and David S. Scharfstein
This case describes the sale of Citigroup's leveraged loan portfolio in 2008 to a group of large private equity funds. The portfolio was sold at a discount given difficulties at the portfolio companies and disruptions in credit markets. The case takes the perspective of a private equity firm evaluating the deal to determine whether buying leveraged loans is a good investment opportunity.
Keywords: Restructuring;
Private Equity;
Insolvency and Bankruptcy;
Credit Derivatives and Swaps;
Financial Markets;
Investment;
Banking Industry;
Financial Services Industry;
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Case
| HBS Case Collection
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2009
(Revised from original 2009 version)
Delphi Corp. and the Credit Derivatives Market (A)
Stuart C. Gilson, Victoria Ivashina and Sarah Abbott
In 2005, Jane Bauer-Martin, a hedge fund manager, is considering what she should do with the fund's large investment in the publicly traded bonds of Delphi Corp., a financially troubled auto parts supplier. Delphi is General Motor's key auto parts supplier, and, like GM, it is burdened with large pension and other retiree liabilities that threaten to push it into bankruptcy. Bauer-Martin is considering using various credit derivatives (credit default swaps, credit-linked notes, credit default swap indices, total return swaps, etc.) to hedge her position in Delphi debt, or to speculate on future Delphi bond prices.
Keywords: Borrowing and Debt;
Insolvency and Bankruptcy;
Credit Derivatives and Swaps;
Bonds;
Financial Management;
Risk Management;
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Case
| HBS Case Collection
|
2009
(Revised from original 2008 version)
Rosetree Mortgage Opportunity Fund
Victoria Ivashina and Andre F. Perold
In December 2008, in the midst of the worst financial crisis since the Great Depression, Rosetree Capital Management was evaluating the purchase of a pool of U.S. residential mortgages. The firm had formed an investment vehicle to acquire troubled residential mortgages from banks and other motivated sellers. The idea was to purchase mortgage loans at a discount and to work with individual borrowers to restructure their debts. Performing mortgages could then potentially be resold in the secondary market. The case provides cash flow projections in various economic scenarios that are revealing of the economics of troubled mortgages and home foreclosure. Rosetree needed to decide whether and how much to bid for the loans.
Keywords: Financial Crisis;
Borrowing and Debt;
Mortgages;
Investment;
Housing;
Valuation;
United States;
Citation: Ivashina, Victoria, and Andre F. Perold. " Rosetree Mortgage Opportunity Fund." Harvard Business School Case 209-088, March 2009. (Revised from original December 2008 version.)
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