Private debt renegotiation, loan amendment and capital structure: Semifinalist for one of five best paper awards at the 2023 FMA Annual Meeting, Corporate Finance category

We study amendments of loan contracts and find that loan amendments (LAs) help firms move towards their target capital structures. LAs incur lower transaction costs than new loans or bond issues. Using data on 10,375 LAs of large, non-distressed US corporations during 1996-2016, we find that LA firms accelerate their speed of adjustment towards target leverage up to 24 months post-LA. This is most pronounced for under-levered firms. Amendments to loan maturity and covenants have the strongest impact. Our results are robust to using alternative definitions of leverage, alternative loan events, and various econometric specifications including placebo and treatment-effects tests.