Tag Archives: borrowers

Banks Have Sticky Preferences for Loan Contract Design: Lender-Side Determinants of Debt Covenant Inclusion

By | June 14, 2021

            Banks develop expertise from their prior lending experience in monitoring borrowers’ financial activities in order to mitigate conflicts of interests between managers and creditors arising from asymmetric information. In loan contracts, covenants have classically been viewed as a method of controlling agency problems by restricting managerial behavior.[1] Covenants can align the interests of the contracting… Read More »

Why Do Lenders Include Cost Savings and Synergy Add-backs in Loan Agreements?

By | June 9, 2021

Accounting is conservative. Under Generally Accepted Accounting Principles (GAAP), a firm should recognize losses before the losses are realized but postpone the recognition of gains until the gains are realized. In other words, the conservative accounting principle promotes timely loss recognition at the expense of timely gain recognition. However, in debt contracting, where lenders and… Read More »