Amendment thresholds and voting rules in debt contracts

Abstract

We study the voting rules to modify, amend, and renegotiate syndicated loan contracts. We base our hypotheses on a model that shows how amendment thresholds can mitigate agency conflicts within the lending syndicate. Consistent with our model predictions, we find that voting rules are more lenient when the lead lender has prior syndicate relationships with non-lead lenders and when the borrower has high default risk. We also find that voting rules are more stringent when the lead lender has a prior underwriting relationship with the borrower, which may indicate potential conflicts of interest between the lead and non-lead lenders. Lastly, we show that loan amendment thresholds are negatively associated with future loan amendments, and positively associated with capital covenants.