Loan Syndication Research Articles

Strategic Syndication: Is Bad News Shared in Loan Syndicates?

We investigate whether lead arrangers opportunistically withhold their private information from participant lenders and how this behavior affects the structure of loan syndicates. Using an FDA inspection database assembled through Freedom of Information Act (FOIA) requests, we show that lead arrangers hold less of a loan when the borrower experiences a bad inspection outcome prior to its issuance. This effect is stronger when lead arrangers are more likely to be informed, as measured by higher inspection materiality and lead arrangers submitting FOIA requests to the FDA prior to a loan’s issuance. Furthermore, the influence of inspection outcomes is mitigated through both voluntary disclosure by the borrower and mandatory disclosure imposed by the Open Government Initiative. Overall, our results provide robust evidence that lead arrangers exploit their informational advantage at the expense of the participant lenders.

Firm-Level Media Coverage, Bank Loans, and the Role of Institutional Environments

Employing an international sample of 12,422 bank loan facilities across 37 countries spanning the period from 2000-2016, we find that both media coverage and positive media sentiment reduce the bank loan interest rate spread, which can be achieved through the media’s roles in mitigating information frictions, reducing information risks, and enhancing the competition among lenders. Moreover, we show that favourable aggregate media sentiment increases the participation probability of non-leader bank lenders and reduces the percentage share of the leading banks involving syndicated loan issuances to borrowers, which implies the information feedback effects of media sentiment in the syndicate loan structure. We further document that this negative relationship is more pronounced in countries with better accounting information environments, better share trading regulation environments, higher representation of privately owned media newspapers, and lower government control of banks. Our main conclusions remain valid after carefully considering endogeneity issues and conducting various robustness tests.

The Diplomacy Discount in Global Syndicated Loans

We investigate whether state-to-state political ties with a global superpower affects the pricing of international syndicated bank loans. We find statistically and economically significant effects of stronger state political ties with the United States, arguably the most dominant global superpower of our times, on the pricing of global syndicated loans. A one standard deviation improvement in state political ties between the U.S. and the government of a borrower's home country is associated with 14 basis points lower loan spread. This is equivalent to a cumulative savings in loan interest payments of about 10 million USD for the average loan in our sample. The effect of political ties on loan pricing is also stronger when lead arrangers are U.S. banks, during periods in which the U.S. is engaged in armed conflicts such as in the Afghan, Iraq and Syrian wars, when the U.S. president belongs to the Republican Party, and for borrowers with better balance sheets and prior lending relationships. Notably, we find that not all firms exploit this mechanism, as cross-listed firms and firms in countries with strong institutional quality and ability to attract institutional investors are much less reliant on political ties for lowering their borrowing costs.

Earnings-Based Borrowing Constraints & Corporate Investments in 2007-09 Financial Crisis

Recent work on the debt composition of non-financial firms finds that most of the large firms' debt is cash flow-based with earnings-based borrowing constraints (EBCs), limiting the maximum debt relative to firms' EBITDA. During the 2007-09 crisis, EBCs tightened in the syndicate loan market. Consistent with the reduction in the supply of credit, I find that investments and debt issue of firms with binding EBCs reduce significantly compared to control firms. Furthermore, firms with binding EBCs cut their share repurchase and total payout during the crisis, whereas control firms increase it. In the cross-section, the reduction in investments and the payout is concentrated in the subsample of firms whose marginal debt issue is more likely to be cash flow-based debt.

Who Lends Before Banking Crises? Evidence from the International Syndicated Loan Market

We show that foreign lenders and low market share lenders extend more credit in comparison to other lenders during lending booms leading to banking crises, but not during other credit expansions. Less established lenders also increase the amount of credit they extend to riskier borrowers, without asking for collateral or imposing covenants and higher interest rates. Our results suggest that taking lenders' characteristics into account could provide an indicator for how much risk an economy is accumulating and be a useful barometer for macroprudential policies.

Enforcement actions on banks and the structure of loan syndicates

We investigate the effect of regulatory enforcement actions on banks' reputation by estimating the effect of non-compliance with laws and regulations among lead arrangers on the structure of syndicated loans. Consistent with a regulatory reputational stigma, a punished lead arranger increases her loan share to entice participants to continue to co-finance the loan. Consequently, when punished lead arranger initiates a new syndicated loan, then this loan tends to be more concentrated and co-funded by participants with previous collaboration with the lead arranger. However, the observed share increases by punished lead arrangers are seemingly mitigated by extending the loan guarantees, performance pricing provisions, and covenants.

Legal Consequences of Creditor's Name Change in Syndicated Loan Agreement

The present study discussed the legal consequence of the creditor's name change and the consideration used by the Supreme Court Judge no. 1300 K/Pdt/2013. The present study was categorized as doctrinal legal study using case study approach. The data were collected through library research. Syllogism was employed as the analysis technique of this legal writing. The change of creditor's name in a syndicated loan, as it happens to "PT. Bank Finconesia” that changes its name to “PT. Bank Agris" cause problems since the new name "PT. Bank Agris" is not mentioned in the loan agreement no. 8 dated 28 November 1995. The making of syndicated loan agreement should be based on article 1320 and 1338 of the Indonesian Civil Code. The Supreme Court no. 1300/K/Pdt/2013, the supreme court has made an incorrect decision by granting the plaintiff's lawsuit as the syndicated creditor. It is incorrect because, in the syndicated loan agreement, the creditors had agreed to appoint a facilitating agent who acts legally as representative of the creditors, it makes the facilitating agent is authorized to have a direct relation with the debtors, especially in filing a lawsuit to the court.

Online Appendix: Concentration of Control Rights in Leveraged Loan Syndicates

This is the Online Appendix to accompany “Concentration of Control Rights in Leveraged Loan Syndicates” by Mitchell Berlin, Greg Nini, and Edison Yu. It includes material that we deem as supplementary to the primary analysis included in the main document.

Bank Branching Deregulation and the Syndicated Loan Market

How do changes in banking regulation affect the syndicated loan market? Because branch networks and loan syndication both enable banks to diversify geographical credit risk, we investigate the staggered implementation of the Riegle–Neal Interstate Branching and Banking Efficiency Act of 1994. Exploiting that the act only changed the legal framework for out-of-state commercial banks, we find that branching deregulation decreased syndicated loan issuance but spurred bilateral lending to corporations. Consistent with a supply-driven substitution effect, this shift is also reflected in interest rate spreads. Our results suggest that changes to banking regulation can substantially alter credit allocation across loan types.

Information Asymmetric Factor, Loan Syndication and Financial Performance of Commercial Banks in Kenya

Information Asymmetric Factor, Loan Syndication and Financial Performance of Commercial Banks in Kenya

Assessing Buyer Power in Syndicated Loans

Bu yazinin Turkce versiyonu surada bulunabilir: https://ssrn.com/abstract=3366192. The main purpose of this study is to examine the buyer power of the borrowers at the multilateral loan market including the syndicated and club loans. Although there has not been a formal definition yet for the buyer power concept in the antitrust economics literature, it may be described as the power that is exercised by the buyers on market transactions. In some markets, it is observed that not the sellers but the buyers may exercise their power on market prices and/or quantities. Corporate multilateral loan market is one of those markets, mostly because of the characteristics of the borrowers which are large and financially sound companies. In this study, the analysis done for the multilateral loan market are based on the assessment of the borrowers’ buyer power and the lenders’ market power. While on one side the competitive conditions in the market and market power of lenders have been elaborated, on the other side factors that determine the buyer power of borrowers have been assessed. The study also provides a specific analysis for Turkish companies in multilateral loan market and their buyer power. Through reviewing the relevant scientific literature and based on the data, the study put the following findings concerning the buyer power of borrowers in multilateral (syndicated/club) loans: • Company characteristics -such as, company size, publicly available information and domestic/foreign ownership- are the most important determinants for the choice of debt instruments. Companies and financial institutions may reach alternative borrowing tools based on their characteristics. • Credit quality of some large companies -called blue-chips- enable them to directly access to the international capital markets and gives them bargaining power over lenders in multilateral loan market. This proves the significance buyer power of such companies in multilateral loan market. • Our analysis for the Turkish borrowers in multilateral loan market shows that Turkish companies have considerable buyer power because of the following reasons: (1) In Turkey the demand side of the multilateral loan market is shallow and concentrated, (2) the number of potential buyers for multilateral loans have been stable, (3) Turkish companies may switch to other debt instruments in case of cost increases. Based on the above findings and facts, we argue that a proper competition analysis which assesses the multilateral loan market -including syndicated and club loans- should consider the buyer power of borrowers as a significant factor.

Supply Chain Relationships and Syndicate Loan Structure

Relationships between large customers and suppliers expose lenders to additional risks. These risks may force lead agents to retain a larger share of syndicated loans, reducing loan-level diversification, and, in turn, increasing the required interest rate spread. Consistent with this view, we find that borrowers’ dependence on a few larger customers or suppliers positively affects the cost of the loans indirectly through the loan structure. Instead, we do not observe a direct cost associated with large customer-supplier links, suggesting that lead agents do not increase the interest rate spread as compensation for the additional risks of dealing with borrowers with large customer-supplier links per se. Finally, we document an inverted U-shaped relationship between the length of the large customer-supplier link and the loan share held by the lead agent.

Risk Taking and Low Longer-Term Interest Rates: Evidence from the U.S. Syndicated Loan Market

We use supervisory data to investigate risk taking in the U.S. syndicated loan market at a time when longer-term interest rates are exceptionally low, and we study the ex-ante credit risk of loans acquired by different types of lenders, including banks and shadow banks. We find that insurance companies, pension funds, and, in particular, structured-finance vehicles take higher credit risk when investors expect interest rates to remain low. Banks originate riskier loans that they tend to divest shortly after origination, thus appearing to accommodate other lenders' investment choices. These results are consistent with a search for yield by certain types of shadow banks and, to the extent that Federal Reserve policies affected longer-term rates, the results are also consistent with the presence of a risk-taking channel of monetary policy. Finally, we find that longer-term interest rates have only a modest effect on loan spreads.

القيمة القانونية للوثائق المرتبطة بالمرحلة التحضيرية لقرض التجمع البنكي = The Legal Value for the Documents Related to the Preparatory Stage of the Syndicated Loans

قرض التجمع البنكي | المقترض | البنك المنظم | البنوك المشاركة | رسالة التفويض | مذكرة المعلومات | Syndicated Loans | Borrower | Arranger Bank | Participating Banks | Mandate Letter | Information Memorandum

Environmental Regulation and the Cost of Bank Loans: International Evidence

Using a sample of 27 countries between 1990 and 2014, we find that banks charge higher interest rates and adjust other contractual features of their loans when lending to firms facing more stringent environmental regulations. Our evidence suggests that lenders’ concerns about the increase in environmental liabilities resulting from regulations is driving the results. Specifically, we show that firms facing such regulations have fewer participants in their loan syndicates, higher bankruptcy risk, and lower credit ratings, despite reducing their leverage. Overall, our results indicate that the observed higher loan spread is the result of environmentally sensitive lending practices by banks.

Effectiveness of Risk Management Strategies Among Deposit Money Banks in Nigeria

Deposit Money Banks (DMBs) face formidable challenges in order to operate profitably. As business entities poised to maximise shareholders’ wealth, they need to grow their revenue while at the same time keep their cost of funds as low as possible. The threats to achieving this come from the mandatory cash reserve ratio that restricts reasonable chunk of deposits from being invested, and their attempt to build-up deposit portfolio that tilts more towards non-interest paying demand deposit. Since the most profitable assets of the DMBs are the loans and advances, the booking of these risk assets for credit worthy customers who will meet maturing obligations as at when due, constitutes the greatest task to management. This paper is a study to determine how effective risk management practices have been among the DMBs in the Nigerian financial services sector. Survey research design was employed. The study population consisted of twenty-six (26) DMBs from which 10 were selected using purposive sampling technique. The primary data were obtained through a validated structured questionnaire. Reliability of the instrument was assessed, yielding Cronbach’s Alpha coefficients for the constructs that ranged between 0.818 and 0.873. The collected data were analysed using Relative Importance Index (RII) and Mean Score Index. Findings revealed that risk management practices were effective among the DMBs in Nigeria with RII of the 7 segments in the risk management practices above 0.80. The board of directors’ involvement came highest with 0.90. The use of loan syndication came last with 0.82 within the risk management strategy segment. The study concluded that the active interest of the board of directors in the risk management practices contributed immensely to the effectiveness among the DMBs. The study recommends that the Central Bank of Nigeria should bring down the cash reserve ratio that restricts credit creation and causes high cost of funds, and also pay interest rate on cash reserves held by the bank.

Loan Syndication Networks

Banks develop network connections through co-syndication relationships with multiple lenders. We create measures of network centrality based on banks' historical co-syndication ties and find that well-connected lenders are more likely to gain lead underwriter status and offer better loan terms. The results are robust to variation in networks generated by the transferring of firms' lending relationships after bank consolidations. Well-connected banks offer lower spreads to firms with more information asymmetry, underwrite loans faster, and retain less loan ownership. The evidence is more consistent with theory suggesting that networks mitigate information asymmetry in syndicates rather than by superior screening or monitoring.

Intellectual property rights reform and the cost of corporate debt

This paper investigates the role of intellectual property rights (IPR) protection on the cost of bank loans for firms in 48 countries. Using substantial reforms of patent rights as a source of identifying variation, the paper provides strong evidence that borrowers from countries that underwent IPR reform experience significant reductions in the cost of bank debt. Importantly, the effects of IPR reform on loan rates are significantly larger in industries that are more IP-intensive. Additional analysis shows that in the wake of reforms borrowers obtain larger size loans, which indicates that improvements in IPR are associated with greater credit availability. IPR reform also increases foreign lenders participation in loan syndicates. Overall, these findings suggest that legal protection afforded to intellectual property has a significant impact on the cost of corporate borrowing and the ability of innovative firms to raise debt capital.

The U.S. Syndicated Loan Market: Matching Data

We introduce a new software package for determining linkages between datasets without common identifiers. We apply these methods to three datasets commonly used in academic research on syndicated lending: Refinitiv LPC DealScan, the Shared National Credit Database, and S&P Global Market Intelligence Compustat. We benchmark the results of our match using results from the literature and previously matched files that are publicly available. We find that the company level matching is enhanced by careful cleaning of the data and considering hierarchical relationships. For loan level matching, a tailored approach based on a good understanding of the data can be better in certain dimensions than a more pure machine learning approach. The R package for the company level match can be found on Github at https://github.com/seunglee98/fedmatch.

Banking market concentration and syndicated loan prices

This paper investigates the ‘price–concentration’ relationship in pricing syndicated loans. By measuring bank concentration at a state level in US, we show supporting evidence to market power hypothesis that syndicated loan prices are positively associated with the concentration of both borrower’s and lead arranger’s markets but not the concentration of participant lenders’ markets. We also show that loan prices are more sensitively to lead arranger’s market concentration than to borrower’s and a borrower could reduce loan costs by borrowing from a less concentrated bank market. In sharp contrast, loan prices are negatively associated with bank concentration if a loan syndication is led by an investment bank or non-bank financial institution. Our findings are robust to a variety of bank concentration measures and model specification.