Sky Blog
Most financing agreements define “Events of Default” as being triggered not only by serious defaults, such as a borrower’s failure to repay its debt, but also by relatively minor or technical “secondary” defaults not involving debt repayment. Typical examples of …
In recent years, China has undertaken massive infrastructure development at home and abroad. Under its widely heralded, globe-spanning Belt and Road Initiative (BRI), China’s financial institutions have financed infrastructure projects in numerous countries around the world. Separately, through its so-called …
Financial covenants have gone in and out of style over the last 30 years. They serve to transfer control rights to lenders when a borrower’s financial metrics breach pre-set contractual thresholds and so provide an interesting laboratory to study debtholder-shareholder …
Among those who study corporate financial distress and reorganization, the notion that senior lenders are in control is deeply ingrained. Celebrated papers in the law and corporate finance literatures attribute lender influence during periods of distress to blue-sky contracting practices.…
In a new paper, we explain that variation in prospective liquidity in an industry or economy prompts changes in corporate lending and banking, including changes in the level of corporate borrowing, the type of debt contracts issued, the covenants contained …
The Dodd-Frank Act, enacted in 2010 in the wake of the Great Recession, introduced mandatory stress-testing for the largest U.S. banks. Dodd-Frank Act Stress Testing (DFAST) was intended to ensure that banks have sufficient capitalization to absorb the losses they …
Since the beginning of 2020, COVID-19 has prompted a surge in economic uncertainty, causing interruptions in business supply chains and revenues that now threaten the survival of companies. Companies struggling to meet their fixed expenses and existing obligations respond by …
On May 28, the Federal Reserve published the structural and operational details of the Main Street Lending Program, releasing program documentation and updated FAQs. These documents are the final remaining pieces before the facilities open. Last week’s publication brings the …
2019 was another strong year for corporate borrowers, continuing a decade-long run marked by historically low interest rates and strong credit markets. Over the last 10 years, total U.S. corporate bonds outstanding rose from $6 trillion to nearly $10 trillion, …
It is well known that banks play an important role in monitoring borrowing firms (e.g., Diamond, 1984). Yet, how banks choose among alternative mechanisms that reduce agency costs with borrowers is not completely understood. In our paper, “Bank Relations and …
In our recent paper, we provide strong empirical evidence that banks play an active role in shaping borrowers’ tax planning. Our evidence is drawn from a comprehensive analysis of the impact of debt covenant violations on corporate tax avoidance.
Covenants …
Operating risk is a major concern for firm management and stakeholders. Stark examples of losses due to corporate operations include BP’s $17.2 billion loss in June 2010 following the Deepwater Horizon incident (Wong and Yousuf, 2010) and Freeport-McMoRan’s $13.9 billion …