Publications
Publications
- Forthcoming
- Management Science
Weak Credit Covenants
By: Victoria Ivashina and Boris Vallée
Abstract
Using novel data on 1,240 credit agreements, we investigate sources of contractual complexity in the leveraged loan market. While negative covenants are widespread, carve-out
and deductible clauses that qualify them are as frequent. We propose simple and comprehensive measures of contractual weakness based on the usage of such clauses. The economic
significance of the actions allowed by these clauses, and the market-wide price reaction that
followed the 2017 J.Crew restructuring, a high-profile use of such contractual elements, support this interpretation. Leveraged buyouts, large transactions, and non-bank funding are
conducive to weaker contractual terms for credit agreements.
Keywords
Leveraged Loans; Loan Contracts; Debt Covenants; Carve-out; Creditor Governance; LBO; Credit; Agreements and Arrangements; Leveraged Buyouts
Citation
Ivashina, Victoria, and Boris Vallée. "Weak Credit Covenants." Management Science (forthcoming).