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Did Structured Credit Fuel the LBO Boom?

ANIL SHIVDASANI and YIHUI WANG
The Journal of Finance
Vol. 66, No. 4 (AUGUST 2011), pp. 1291-1328
Published by: Wiley for the American Finance Association
Stable URL: http://www.jstor.org/stable/29789816
Page Count: 38
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Did Structured Credit Fuel the LBO Boom?
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Abstract

The leveraged buyout (LBO) boom of 2004 to 2007 was fueled by growth in collateralized debt obligations (CDOs) and other forms of securitization. Banks active in structured credit underwriting lent more for LBOs, indicating that bank lending policies linked 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 structured credit markets did not lead to worse LBOs, overpayment, or riskier deal structures. Securitization markets altered banks' access to capital, affected their lending policies, and fueled the recent LBO boom.

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