Weak Credit Covenants

• 成果类型: Article; Early Access
• 署名作者: Ivashina, Victoria; Vallee, Boris
• 署名单位: Harvard University; National Bureau of Economic Research
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2023.01496
• 发表日期: 2025
• 关键词: leveraged loans; loan contracts; covenants; carve-out; basket; creditor governance; LBO

摘要

Using novel data on 1,240 credit agreements, we investigate sources of contractual complexity in the leveraged loan market. Although 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 nonbank funding are conducive to weaker contractual terms for credit agreements.