High-Yield Debt Covenants and Their Real Effects

• 成果类型: Article; Early Access
• 署名作者: Brauning, Falk; Ivashina, Victoria; Ozdagli, Ali
• 署名单位: Federal Reserve System - USA; Federal Reserve Bank - Boston; Harvard University; National Bureau of Economic Research; Center for Economic & Policy Research (CEPR); Federal Reserve System - USA; Federal Reserve Bank - Dallas
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454; 1465-7368
• DOI: 10.1093/rfs/hhaf069
• 发表日期: 2025-10-05
• 关键词: G31; G33; G21; G32; CREDITOR CONTROL RIGHTS; regression-discontinuity; benefits

摘要

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. Contrary to the prevailing view that incurrence covenants have limited practical impact, we document a substantial decline in investment when these covenants are triggered. During economic downturns, these provisions can become binding well before default or bankruptcy. Our findings reveal a novel channel through which economic shocks propagate, driven by incurrence-based contractual restrictions that are widespread in the highly leveraged corporate sector.