Did Structured Credit Fuel the LBO Boom?

Abstract

We show that the recent leveraged buyout (LBO) boom was linked to the growth in collaterialized debt obligations (CDOs) and other forms of securitization. Banks that were active in structured credit underwriting lent more for LBOs indicating that bank lending was an important channel linking the 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 the structured credit market did not lead to worse LBO deals, overpayment, or riskier deal structures. Our findings suggest that securitization markets altered banks’ access to capital and affected their lending policies and offer an explanation for the recent LBO boom.

Cite this paper

@inproceedings{Boom2009DidSC, title={Did Structured Credit Fuel the LBO Boom?}, author={LBO Boom and Anil Shivdasani and Yihui Wang and Chris J. Parsons and Adam Victor Reed and Jay R. Ritter}, year={2009} }