In this paper we investigate the effects of debt usage on (risk-adjusted) equity returns in private equity-backed buyout transactions. We use a proprietary data set of more than 700 realized European and North American buyouts acquired between 1990 and 2006 to empirically assess theoretical...

We study a defaultable firm's debt priority structure in a simple structural model where the firm issues senior and junior bonds and is subject to both liquidity and solvency risks. Assuming that the absolute priority rule prevails and that liquidation is immediate upon default, we determine the...