THE WEALTH EFFECTS OF BANK FINANCING ANNOUNCEMENTS IN HIGHLY LEVERAGED TRANSACTIONS

We analyze the effect of financing announcements of highly leveraged t ransactions (HLTs) on the stock prices of the banks that lead HLT-lend ing syndicates. For our sample of 41 HLTs, we document that the first HLT and bank financing announcements result in positive wealth effects for the lending banks. We also find that these wealth effects are low er in 1985, for smaller HLTs, and for banks with a high loan loss rese rve to total asset ratio. Finally, we report that Leveraged Buyout (LB O) targets gain about 2 percent, whereas leveraged recap targets lose about 2 percent, when the first bank financing agreement is announced.