Recent decades have witnessed several waves of buyout activity. We find LBOs to be a significant concern for bondholders by showing that a) intra-industry credit spreads increase upon an LBO announcement, b) yields on bonds without event risk covenants are, on average, 21bps higher than those on same-firm bonds with such covenants and c) structural models calibrated to historical LBO events imply an impact of 18-21bps on 10-year credit spreads. The impact is strongest in expansion periods and for bonds with maturities of 10-20 years.

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