Bank loan renegotiation and credit default swaps

Brian Clark, James Donato, Bill B Francis and Thomas D Shohfi

Journal of Banking & Finance, 2023, vol. 151, issue C

Abstract: Using Roberts (2015) loan-level data from 2000 to 2011, we find that the inception of CDS trading on reference firms’ debt is associated with a decreased number and lower probability of amendments, restatements, and rollovers to existing lenders of bank loans. Reference firms are also less likely to terminate loans prematurely or refinance with different lenders after the inception of CDS trading and tend to exhibit longer loan maturities. Our evidence is consistent with the empty creditor problem arising from CDS trading and the resulting decrease in the negotiation power of borrowers. Our research contributes to understanding how financial innovations alter bank-lending relationships.

Keywords: CDS; Credit derivatives; Credit default swaps; Empty creditor; Bank loans; Renegotiation (search for similar items in EconPapers)
JEL-codes: G20 G21 G33 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:151:y:2023:i:c:s0378426620301989

DOI: 10.1016/j.jbankfin.2020.105936

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