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High-Yield Debt Covenants and Their Real Effects
Federal Reserve Bank of Dallas, Working Papers, 2021Abstract High-yield debt, including leveraged loans, typically features incurrence or ′′cov-lite'' financial covenants. Unlike traditional maintenance covenants, incurrence covenants preserve equity control rights but impose specific contractual restrictions on the borrower once certain financial thresholds are crossed.
Falk Bräuning +2 more
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Debt Covenants and the Value of Commitment
SSRN Electronic Journal, 2020In a dynamic setup, the value of a capital structure policy for a firm depends on shareholders’ commitment. We analyze whether debt covenants can be com- mitment devices and their disciplinary effect on firm policies. While renegotiation following covenant violations allows for debt holders’ control and improves the ex post firm value, it weakens ...
Andrea Gamba, Lei Mao
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Debt covenants, bankruptcy risk, and the cost of debt
2021Accepted ...
Mansi, Sattar A., Qi, Yaxuan, Wald, John
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The impact of debt covenants on earnings announcement returns [PDF]
Applied Economics, 2019 We study the impact of debt covenants on earnings announcement returns by creating 10 covenant groups and a covenant index using event-study methodology. We find that during bad news, whether it stems from a bad earnings surprise or a negative average market reaction, both the index and most covenant groups display a significantly negative impact on ...
Evrim Akdogu, Yigit Atilgan
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Healthcare financial management : journal of the Healthcare Financial Management Association, 2009
In the current economy, many hospitals are changing their debt structure or taking on new debt. Healthcare financial managers should avoid tripping their debt covenants by creating a risk budget that includes covenant considerations. Tactical management of the risk budget may be necessary and requires understanding how decisions and market influences ...
William M, Courson, Tanya K, Hahn
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In the current economy, many hospitals are changing their debt structure or taking on new debt. Healthcare financial managers should avoid tripping their debt covenants by creating a risk budget that includes covenant considerations. Tactical management of the risk budget may be necessary and requires understanding how decisions and market influences ...
William M, Courson, Tanya K, Hahn
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Debt Covenants and Corporate Governance
Annual Review of Financial Economics, 2019We review the recent theoretical and empirical literature on debt covenants with a particular focus on how creditor governance after covenant violations can influence the borrower's corporate policies. From the theoretical literature, we identify the key trade-offs that help explain the observed heterogeneity in covenant types, inclusion, likelihood ...
Sudheer Chava +3 more
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Corporate Compliance with Debt Covenants
Journal of Accounting Research, 1990In this paper, I present and test a model of corporate compliance with the debt covenant requiring payment of a current obligation. This study adds to the empirical literature on forecasting financial distress by showing conditions under which debt default may be a rational economic decision by the firm's shareholders.
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Auditor Quality and Debt Covenants
SSRN Electronic Journal, 2015AbstractThis study examines the impact of auditor quality on financial covenants in debt contracts. We conjecture that high‐quality auditors have two related effects on these debt covenants: (i) they encourage fewer and less restrictive covenants by providing assurance to lenders at contract inception and, consequently, (ii) they ensure a lower ...
Ashok Robin, Qiang Wu, Hao Zhang
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Bond covenants, bankruptcy risk, and the cost of debt
Journal of Corporate Finance, 2020Are all covenants equally effective at reducing the bondholder-shareholder conflict? Examining the most frequently used bond covenants, we document that four out of 24 restrictions are associated with significantly higher bankruptcy risk. The use of these Default Indicating covenants can be partly explained by faulty contract design, greater recovery ...
Sattar Mansi, Yaxuan Qi, John K. Wald
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Multiple Lenders, Strategic Default and Debt Covenants
SSRN Electronic Journal, 2013We study competition in capital markets subject to moral hazard when investors cannot prevent side trading. Perfect competition is impeded by entrepreneurs’ threat to borrow excessively from multiple lenders and to shirk. As a consequence, investors earn positive rents at equilibrium. We then analyze how investors’ ability to design financial contracts
Attar, Andrea +3 more
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