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Design and impacts of securitized leveraged buyouts

Design and impacts of securitized leveraged buyouts
Design and impacts of securitized leveraged buyouts
Private equity investors have traditionally used innovative financial methods in structuring their leveraged buyouts(LBO) deals. In recent years, they have frequently employed securitization to raise funds on the back of their acquisitions’ operating assets. A distinctive feature of these transactions is that they aim to enhance the securitizing LBO’s debt pay capacity through a set of structural enhancements including operating debt covenants. Operating covenants — supported by legal security arrangements — mitigate an LBO’s financial and operating risks and improve its cash generation potential. We test this hypothesis by examining changes in the operating income of Hertz LBO. The results show that, within the operating framework adopted by Hertz LBO, securitization improved the transaction’s debt service capacity.
leveraged buyouts, securitization, operating management covenants, hertz
1-12
Bouvier, Laurent
32a423b7-5a6f-485e-a54e-2616556e0773
Nisar, Tahir
6b1513b5-23d1-4151-8dd2-9f6eaa6ea3a6
Bouvier, Laurent
32a423b7-5a6f-485e-a54e-2616556e0773
Nisar, Tahir
6b1513b5-23d1-4151-8dd2-9f6eaa6ea3a6

Bouvier, Laurent and Nisar, Tahir (2015) Design and impacts of securitized leveraged buyouts. Cogent Economics & Finance, 3 (1), 1-12. (doi:10.1080/23322039.2015.1009307).

Record type: Article

Abstract

Private equity investors have traditionally used innovative financial methods in structuring their leveraged buyouts(LBO) deals. In recent years, they have frequently employed securitization to raise funds on the back of their acquisitions’ operating assets. A distinctive feature of these transactions is that they aim to enhance the securitizing LBO’s debt pay capacity through a set of structural enhancements including operating debt covenants. Operating covenants — supported by legal security arrangements — mitigate an LBO’s financial and operating risks and improve its cash generation potential. We test this hypothesis by examining changes in the operating income of Hertz LBO. The results show that, within the operating framework adopted by Hertz LBO, securitization improved the transaction’s debt service capacity.

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Accepted/In Press date: 18 December 2014
Published date: 19 February 2015
Keywords: leveraged buyouts, securitization, operating management covenants, hertz
Organisations: Southampton Business School

Identifiers

Local EPrints ID: 380260
URI: https://eprints.soton.ac.uk/id/eprint/380260
PURE UUID: 8855e97f-f250-425b-bc09-c2fc6b5a090b

Catalogue record

Date deposited: 08 Sep 2015 09:16
Last modified: 19 Jul 2019 20:37

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