Securitization Debt and Corporate Performance

We investigate whether corporate securitization enhances a firm’s debt service capacity. Agency problems may arise in the relationship between bondholders and servicers/managers because of the operating nature of the securitized assets. Securitization overcomes such concerns by introducing a set of operating debt covenants. Our study of the public houses with more than 17,000 retail outlets shows that managed firms perform better that tenanted firms as they maximize cash proceeds from an undervalued part of the firm. Operating covenants must therefore allow for profitable investment opportunities as well as manager equity so as to align their interests with that of bondholders.