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Bondholder losses in leveraged buyouts |
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| Authors: | Warga, A Welch, I |
| Affiliation: | 1 School of Business Administration, University of Wisconsin-Milwaukee, 640 Bolton Hall, Milwaukee, WI 53201, USA 2 University of California, Los Angeles, USA z Corresponding author |
| Abstract: | Announcements of successful leveraged buyouts (LBOs) duringJanuary 1985 to April 1989 caused a significantly negative returnon outstanding publicly traded nonconvertible bonds. Yet theaverage risk-adjusted debt holder losses are less than 7 percentof the average risk-adjusted equity bolder gains. Bond lossesare related to the pre-LBO rating, but only weakly to equityholder gains. We demonstrate that trader-quoted data from amajor investment bank offers conclusions about the effects ofLBOs on debt holders different from those drawn from commonlyused matrix and exchange-based data (such as Standard & Poor-'sBond Guide data). This has important implications for eventstudies involving debt instruments. |
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