Abstract
We develop a theory that rationalizes syndicated loans with (1) a relationship lender who lends to the firm repeatedly over time and monitors the firm, (2) transactional lenders who lend to the firm infrequently and do not monitor, and (3) frequent loan renegotiations. Transactional lenders are biased toward liquidation, whereas relationship lenders are biased toward continuation. By borrowing simultaneously from both types of lenders, the firm generates disagreement between them. This disagreement induces costly renegotiation upon default, which can increase monitoring incentives and thereby reduce the firm's cost of credit.
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