Pipeline risk in leveraged loan syndication

Max Bruche, Frederic Malherbe and Ralf Meisenzahlimeon

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

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: syndicated loans; leveraged loans; pipeline risk; lead arranger share; debt overhang (search for similar items in EconPapers)
JEL-codes: G23 G24 G30 (search for similar items in EconPapers)
Pages: 76 pages
Date: 2017-04-01
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Downloads: (external link)
http://eprints.lse.ac.uk/118977/ Open access version. (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:ehl:lserod:118977

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