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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
The Myth of the Lead Arranger’s Share
We challenge theories that lead arrangers retain shares of syndicated loans to overcome information asymmetries. Lead arrangers frequently sell their entire loan stake—in over 50 percent of term and 70 percent of institutional loans. These selloffs usually occur days after origination, with lead arrangers retaining no other borrower exposure in 37 percent of selloff cases. Counter to theories, sold loans perform better than retained loans. Our results imply that information asymmetries could be lower than commonly assumed or mitigated by alternative mechanisms such as underwriting risk. We ...