What Do Lead Banks Learn from Leveraged Loan Investors?

Max Bruche, Ralf R. Meisenzahl and David X. Xu

No 72, Berlin School of Economics Discussion Papers from Berlin School of Economics

Abstract: We examine the private information held by nonbank lenders in leveraged loan syndications. In these transactions, lead banks gather information about participant demand through bookbuilding and use it to adjust loan spreads. An upward spread adjustment during bookbuilding strongly predicts the borrower’s future default and prompts banks to raise their internal risk estimates. This suggests that nonbank syndicate participants’ demand reveals information about borrower credit quality unknown to the lead bank before bookbuilding. Our results challenge the conventional view of information asymmetries between banks and nonbank lenders, instead highlighting an element of information complementarity in modern corporate lending.

Keywords: syndicated loans; nonbanks; underwriting (search for similar items in EconPapers)
JEL-codes: G23 G24 G30 (search for similar items in EconPapers)
Pages: 59 pages
Date: 2025-09-08
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Persistent link: https://EconPapers.repec.org/RePEc:bdp:dpaper:0072

DOI: 10.48462/opus4-5921

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