Did Securitization Affect the Cost of Corporate Debt?

Abstract

This paper investigates whether the securitization of corporate bank loans had an impact on the price of corporate debt. Our results suggest that loans that are subsequently securitized are associated with a lower spread of 10-17 basis points relative to loans that are not subsequently securitized. To identify the particular role of securitization, we employ a difference in differences approach and consider loan characteristics that are associated with securitization such as the payoff structure and the identity of the originating bank. Spreads on securitization-friendly Term Loan B facilities relative to either Term Loan A facilities or revolvers decline with the 2004-2007 Securitization Boom. This decline is driven almost completely by loans originated by banks active in CLO origination. The results are consistent with the view that securitization caused a reduction in the cost of capital.