Weak Credit Covenants

Victoria  Ivashina; Boris  Vallee

Working Paper | 2017

Weak Credit Covenants

Abstract

Using novel data on 1,240 credit agreements for large corporate loans, we show that while inclusion of negative covenants that restrict new debt issuance, payments, asset sales, affiliate transactions and investments is widespread, clauses that weaken these restrictions are almost as common. We measure the deductions for the core covenants in terms of their potential impact on overall leverage and show that they are large, and concentrated in already highly levered transactions. We analyze the cross-sectional variation in contractual weaknesses introduced through deductions and exclusions to negative covenants and show that such contractual provisions are characteristic of leveraged buyouts.

Keywords: Credit; Agreements and Arrangements;

Language: English

Format: Print

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Citation:

Ivashina, Victoria, and Boris Vallee. "Weak Credit Covenants." Working Paper, June 2017.

This case follows Nikos Stathopoulos, Managing Partner of BC Partners, as he and his team evaluate the potential sale of one of BC Partners’ portfolio companies, Acuris. Acuris was a global financial intelligence, news, and data company that had been acquired by BC Partners only three years prior. During that time, Stathopoulos and his team had been able to implement a variety of operational improvements and acquisitions which resulted in BC Partners receiving numerous offers for both full and partial sales of the company, at attractive multiples. But the BC Partners team felt there was still more gain to be realized from their value-add initiatives, and there were also several initiatives they had identified but not yet implemented. Stathopoulos had to decide: should they pursue a full sale, partial sale, or no sale at all?

Teaching Note | HBS Case Collection | November 2019

Actera Group: Investing in Mars Cinema Group (A) and (B)

Victoria Ivashina and Jeffrey Boyar

In summer of 2010, Murat Çavuşoğlu (HBS MBA 1994) led private equity firm Actera Group’s investment in Mars Cinema Group (Mars), the leading movie exhibitor in Turkey. Immediately after acquiring Mars and merging it with the second larger player in the market, AFM, Çavuşoğlu focused on institutionalizing and implementing value creation work streams in Mars. While transforming an entrepreneurial company into an institutionalized firm, Çavuşoğlu established adjacent businesses such as movie advertising and ticket sales. The most recent step in transforming Mars was to establish a movie distribution arm, which would help the company to monitor and manage the seasonal cycles, enhance the appeal for investors in the exit, and improve the valuation. However, while Çavuşoğlu was laying out the plans for his next move with movie distribution in 2014, Turkey’s Council of State, the highest administrative court in the country, had decided to cancel the approval for the merger of Mars and AFM, putting all of Actera’s efforts on Mars at risk. Should Çavuşoğlu push the stop button for distribution? If Çavuşoğlu decided to move forward with distribution, should he do it now or wait until the process with Turkey’s judiciary and regulatory authorities cleared out?

Keywords: Private Equity; Value Creation; Transformation; Valuation; Entertainment and Recreation Industry; Motion Pictures and Video Industry; Turkey;

Citation:

Ivashina, Victoria, and Jeffrey Boyar. "Actera Group: Investing in Mars Cinema Group (A) and (B)." Harvard Business School Teaching Note 220-045, November 2019. View Details

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Weak Credit Covenants

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