Risk and performance of bonds sponsored by private equity firms

Xiaping Cao, Konan Chan, Kathleen M Kahle

Research output: Contribution to journalArticle

Abstract

The bond market is an important source of financing for Private Equity (PE) sponsored transactions. Using the methodology suggested by Bessembinder et al. (2009), we find that PE-sponsored bonds underperform comparable benchmarks. This is especially true for bonds with credit ratings below investment grade and those issued in hot bond markets. Furthermore, bonds sponsored by more experienced PE groups (PEGs) underperform bonds associated with less experienced PE groups, while bonds backed by investment bank-affiliated PEGs underperform bonds sponsored by other PEGs. These findings highlight the risk and return relationship in the high-yield bond market related to leveraged buyouts (LBOs) and PEGs.

Original languageEnglish (US)
Pages (from-to)41-53
Number of pages13
JournalJournal of Banking and Finance
Volume93
DOIs
StatePublished - Aug 1 2018

Fingerprint

Private equity
Bond market
Benchmark
Financing
High yield bonds
Investment banks
Methodology
Leveraged buyouts
Credit rating
Risk and return

Keywords

  • Bonds
  • Credit rating
  • Leveraged buyouts
  • Performance
  • Private equity

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

Cite this

Risk and performance of bonds sponsored by private equity firms. / Cao, Xiaping; Chan, Konan; Kahle, Kathleen M.

In: Journal of Banking and Finance, Vol. 93, 01.08.2018, p. 41-53.

Research output: Contribution to journalArticle

@article{6eb910c1f59c41fb9092d57bde3ebb48,
title = "Risk and performance of bonds sponsored by private equity firms",
abstract = "The bond market is an important source of financing for Private Equity (PE) sponsored transactions. Using the methodology suggested by Bessembinder et al. (2009), we find that PE-sponsored bonds underperform comparable benchmarks. This is especially true for bonds with credit ratings below investment grade and those issued in hot bond markets. Furthermore, bonds sponsored by more experienced PE groups (PEGs) underperform bonds associated with less experienced PE groups, while bonds backed by investment bank-affiliated PEGs underperform bonds sponsored by other PEGs. These findings highlight the risk and return relationship in the high-yield bond market related to leveraged buyouts (LBOs) and PEGs.",
keywords = "Bonds, Credit rating, Leveraged buyouts, Performance, Private equity",
author = "Xiaping Cao and Konan Chan and Kahle, {Kathleen M}",
year = "2018",
month = "8",
day = "1",
doi = "10.1016/j.jbankfin.2018.05.018",
language = "English (US)",
volume = "93",
pages = "41--53",
journal = "Journal of Banking and Finance",
issn = "0378-4266",
publisher = "Elsevier",

}

TY - JOUR

T1 - Risk and performance of bonds sponsored by private equity firms

AU - Cao, Xiaping

AU - Chan, Konan

AU - Kahle, Kathleen M

PY - 2018/8/1

Y1 - 2018/8/1

N2 - The bond market is an important source of financing for Private Equity (PE) sponsored transactions. Using the methodology suggested by Bessembinder et al. (2009), we find that PE-sponsored bonds underperform comparable benchmarks. This is especially true for bonds with credit ratings below investment grade and those issued in hot bond markets. Furthermore, bonds sponsored by more experienced PE groups (PEGs) underperform bonds associated with less experienced PE groups, while bonds backed by investment bank-affiliated PEGs underperform bonds sponsored by other PEGs. These findings highlight the risk and return relationship in the high-yield bond market related to leveraged buyouts (LBOs) and PEGs.

AB - The bond market is an important source of financing for Private Equity (PE) sponsored transactions. Using the methodology suggested by Bessembinder et al. (2009), we find that PE-sponsored bonds underperform comparable benchmarks. This is especially true for bonds with credit ratings below investment grade and those issued in hot bond markets. Furthermore, bonds sponsored by more experienced PE groups (PEGs) underperform bonds associated with less experienced PE groups, while bonds backed by investment bank-affiliated PEGs underperform bonds sponsored by other PEGs. These findings highlight the risk and return relationship in the high-yield bond market related to leveraged buyouts (LBOs) and PEGs.

KW - Bonds

KW - Credit rating

KW - Leveraged buyouts

KW - Performance

KW - Private equity

UR - http://www.scopus.com/inward/record.url?scp=85048202580&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=85048202580&partnerID=8YFLogxK

U2 - 10.1016/j.jbankfin.2018.05.018

DO - 10.1016/j.jbankfin.2018.05.018

M3 - Article

AN - SCOPUS:85048202580

VL - 93

SP - 41

EP - 53

JO - Journal of Banking and Finance

JF - Journal of Banking and Finance

SN - 0378-4266

ER -