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Journal of Finance Vol. 66 No. 4 2011

Did Structured Credit Fuel the LBO Boom?

Anil Shivdasani1,2,3,4,5,6,7,8; Yihui Wang4,5,6,9

1 University of North Carolina at Chapel Hill · 2 Texas Christian University · 3 University of Wisconsin–Madison · 4 Hong Kong Baptist University · 5 City University of Hong Kong · 6 Chinese University of Hong Kong · 7 Southern Methodist University · 8 University of Oregon · 9 American Finance Association

Abstract

The leveraged buyout (LBO) boom of 2004 to 2007 was fueled by growth in collateralized debt obligations (CDOs) and other forms of securitization. Banks active in structured credit underwriting lent more for LBOs, indicating that bank lending policies linked LBO and CDO markets. LBO loans originated by large CDO underwriters were associated with lower spreads, weaker covenants, and greater use of bank debt in deal financing. Loans financed through structured credit markets did not lead to worse LBOs, overpayment, or riskier deal structures. Securitization markets altered banks' access to capital, affected their lending policies, and fueled the recent LBO boom.

DOI
10.1111/j.1540-6261.2011.01667.x
Volume
66
Issue
4
Pages
1291-1328
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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