Pipeline Risk in Leveraged Loan Syndication

Max Bruche, Frederic Malherbe and Ralf R Meisenzahl

The Review of Financial Studies, 2020, vol. 33, issue 12, 5660-5705

Abstract: What is the economic role played by arrangers of leveraged loans, and what are the risks they face? We provide evidence that arrangers solve a demand discovery problem. Investors have incentives to feign little interest in the loan to obtain better terms. To deter such behavior, arrangers underprice hot deals and ration investors on cold deals. The risk associated with demand discovery is often shared between borrowers and arrangers. One implication is that to ration investors on cold deals, arrangers retain larger loan shares. This motive for retention is different from the monitoring incentive motive previously considered in the literature.

JEL-codes: G23 G24 G30 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (29)

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