Pipeline Risk in Leveraged Loan Syndication

Frederic Malherbe, Max Bruche and Ralf R Meisenzahl

No 11956, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Leveraged term loans are typically arranged by banks but distributed to institutional investors. Using novel data, we find that to elicit investors' willingness to pay, arrangers expose themselves to pipeline risk : They have to retain larger shares when investors are willing to pay less than expected. We argue that the retention of such problematic loans creates a debt overhang problem. Consistent with this, we fi nd that the materialization of pipeline risk for an arranger reduces its subsequent arranging and lending activity. Aggregate time series exhibit a similar pattern, which suggests that the informational friction we identify could amplify the credit cycle.

Keywords: Syndicated loans; Leveraged loans; Pipeline risk; Lead arranger share; Debt overhang (search for similar items in EconPapers)
JEL-codes: G23 G24 G30 (search for similar items in EconPapers)
Date: 2017-04
New Economics Papers: this item is included in nep-cfn
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Citations: View citations in EconPapers (12)

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Related works:
Journal Article: Pipeline Risk in Leveraged Loan Syndication (2020)
Working Paper: Pipeline risk in leveraged loan syndication (2017)
Working Paper: Pipeline Risk in Leveraged Loan Syndication (2017)
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