Pipeline Risk in Leveraged Loan Syndication

Max Bruche, Frederic Malherbe and Ralf R. Meisenzahl

No 2017-048, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

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 find 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: Debt Overhang; Lead Arranger Share; Leveraged Loans; Pipeline Risk; Syndicated Loans (search for similar items in EconPapers)
JEL-codes: G23 G24 G30 (search for similar items in EconPapers)
Pages: 75 pages
Date: 2017-04-06
New Economics Papers: this item is included in nep-cfn
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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https://www.federalreserve.gov/econres/feds/files/2017048pap.pdf (application/pdf)

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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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2017-48

DOI: 10.17016/FEDS.2017.048

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