Economic value in tranching of syndicated loans

Pankaj Kumar Maskara

Journal of Banking & Finance, 2010, vol. 34, issue 5, 946-955

Abstract: This paper presents a theory to explain the economic value of tranching and provides empirical evidence to support the theoretical implications. I show that riskier firms are more likely to take loans with multiple tranches. Therefore, the average credit spread on a syndicated loan with multiple tranches is higher than that on a non-tranched loan. However, after accounting for the risk characteristics of a tranched loan, I show that borrowings that are a part of tranched loans have lower credit spreads than otherwise identical non-tranched loans. I also show that the benefits of tranching accrue primarily to riskier borrowers.

Keywords: Tranching; Syndicated; loans (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (24)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:34:y:2010:i:5:p:946-955

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