Private Equity in Public Corporations

Douglas Cummin

Risk and performance of bonds sponsored by private equity firms

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 under perform 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. (C) 2018 Elsevier B.V. All rights reserved.Sun Yat-sen University [10000-18831102]; Ministry of Science and Technology, Taiwan [MOST 102-2410-H-004-026-MY2]36 month embargo; published online: 31 May 2018This item from the UA Faculty Publications collection is made available by the University of Arizona with support from the University of Arizona Libraries. If you have questions, please contact us at [email protected]