We examine the impact of the new lease standard (ASC842) on credit markets. We show that, following the adoption of ASC 842, firmsthat rely heavily on operating leases (i.e., high lease intensity firms) experience a decline in syndicated loan spreads. This decline is morepronounced when firms are financially distressed, when syndicate lead arrangersare relatively inexperienced and when the uncertainty surrounding operatinglease assets and liabilities in the pre-period is higher. This decline in loanspreads is in contrast with the concerns voiced by firms and some politicianswho lobbied heavily against lease capitalization. We also document a decline inthe secondary bond market yield spreads of high lease intensity firms relativeto low lease intensity firms, which is more pronounced for speculative, lowmaturity, bonds. These changes in the level and term structure of bond yieldsare consistent with a decline in uncertainty regarding firms’ asset values anddefault barrier, and with a resulting reduction in transparency spreads (Duffieand Lando 200; Giesecke 2006). 

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