Bondbolder Losses in Leveraged Buyouts of the total trading.For example,of the 37 bonds in Lehn and Poulsen, exchange price quotes are available for only 13 bonds by 12 com- panies (9 nonconvertibles,4 convertibles).6 Institutional data is more comprehensive than exchange data.It covers a larger number of bonds,offering prices at which large posi- tions could have been or indeed were transacted.Unfortunately,all studies known to us which use institutional prices use data from the Merrill Lynch Bond Price Service (often obtained indirectly through services such as Data Resources Incorporated or Bloomberg Financial Markets).7 These prices are not trader quotes but algorithmically determined"matrix"prices.The algorithms consist of rules that spec- ify the addition of a fixed spread over either an actively traded bench- mark issue of the same company,another company's issue with similar rating,maturity,and coupon,or a U.S.Treasury issue. Several commercial bond pricing services provide a mix of exchange and matrix prices,and prominent among these are Standard Poor's and Moody's.Both of these services prioritize their data sources by always putting in exchange transactions as the reported prices when they are available.We will henceforth refer to these services as exchange based.Because exchange transactions are rare,exchange- based data services rely heavily on matrix prices.Until recently,matrix prices employed by s&P and Moody's were created by Interactive Data Corporation (IDC).IDC supplies data to S&P and Moody's and, for exchange-listed bonds,fills in missing data with bid prices from the exchange if the nontrading period is less than a week.If a bond does not trade for a week or more,IDC fills in the data series with either an institutionally based matrix bid price or a dealer bid quote. IDC therefore mixes odd-lot exchange data and institutional data in a single series.If a bond is not exchange listed (and most are not), then all prices are matrix based. Figure 1 illustrates a case where transactions-based yields are not available.In October 1986 Lear Siegler announced a leveraged buy. out.S&P provided the yields plotted in Figure 1 in the year surround- ing this event for an 11.75 percent coupon bond maturing October Of the 92 LBOs they studied,68 firms,or nearly three-quarters of their sample,did not have listed bonds outstanding.Moreover,Lehn and Poulsen's largest event window was 20 days before and after the LBO announcement.Their sample would have been further reduced if they had investi- gated post-LBO bond performance more than a month after or before the event (as we do in this article). 7 See Nunn,Hill,and Schneeweis (1986)for references to articles employing institutional prices from Merrill Lynch.Their article also contains additional details on exchange prices. "On rare occasions,IDC will supply an ask price if no bid price is available. According to s&P,matrix prices are now calculated in house for certain issues.During the period covered in this study,IDC was the primary source of matrix prices.Occasionally,IDC uses dealer quotes in its matrix prices,but these dealer quotes represent a small percentage of IDC prices because of the large number of bonds they cover. 963