Syndicated Loan Spreads and the Composition of the Syndicate

Syndicated Loan Spreads and the Composition of the Syndicate

During the past decade, non-bank institutional investors are increasingly taking larger roles in the corporate lending than they historically have played. These non-bank institutional lenders typically have higher required rates of return than banks, but invest in the same loan facilities. In a sample of 20,031 leveraged loan facilities originated between 1997 and 2007, facilities including a non-bank institution in their syndicates have higher spreads than otherwise identical bank-only facilities. Contrary to risk-based explanations of this finding, non-bank facilities are priced with premiums relative to bank-only facilities in the same loan package. These non-bank premiums are substantially larger when a hedge or private equity fund is one of the syndicate members. Consistent with the notion that firms are willing to pay a premium when loan facilities are particularly important to them, the non-bank premiums are larger when borrowing firms face financial constraints and when capital is less available from banks.

Jongha Lim, Bernadette A. Minton, and Michael Weisbach

Journal of Financial Economics


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By |2018-01-01T00:00:00-08:00January 1st, 2018|Efficiency/Growth, Financial Regulation, Inequality, Reference|