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Working Paper
EBITDA Add-backs in Debt Contracting: A Step Too Far?
Financial covenants in syndicated loan agreements often rely on definitions of EBITDA that deviate from the GAAP definition. We document the increased usage of non-GAAP addbacks toEBITDA in recent times. Using the 2013 Interagency Guidance on Leveraged Lending, which we argue led to an exogenous increase in non-GAAP EBITDA addbacks, we show that these addbacksincrease the likelihood of loan delinquency and default, and also increase the likelihood of the borrower experiencing a ratings downgrade. Greater use of non-GAAP EBITDA addbacks also makes it more likely that lead arrangers lower their ...
Report
Do Lead Arrangers Retain Their Lead Shares?
We examine how lead arrangers’ ownership stakes in syndicated loans evolve after origination, complementing prior research on lead shares at origination. Lead arrangers tend to retain shares in bankheld loans but frequently sell shares in loans distributed to institutional investors, typically within days of origination. The frequency of these loan sales has increased over time, aligning with the rise of the originate-to-distribute model. Importantly, we find no evidence that loan sales are associated with worse performance. Additional evidence suggests that exposure through other loans, ...