Ownership Concentration and Performance of Deteriorating Syndicated Loans

Mariassunta Giannetti and Ralf R. Meisenzahl

No WP-2021-10, Working Paper Series from Federal Reserve Bank of Chicago

Abstract: Regulation and capital constraints may force banks and collateralized loan obligations (CLOs) to sell deteriorating loans, potentially hampering renegotiation and amplifying the initial negative shock to the borrower. We show that banks and CLOs sell downgraded loans to mutual funds and hedge funds. The reallocation of loan shares favors the syndicate's concentration, increasing lenders' incentives to renegotiate. However, syndicates remain less concentrated when potential buyers experience financial constraints and subsequently loans are less likely to be amended and more likely to be downgraded even further. Our findings indicate that existing regulations may amplify shocks to credit quality during periods of generalized distress in the financial system.

Keywords: Debtor Concentration; Credit Quality; Leveraged Lending (search for similar items in EconPapers)
JEL-codes: G21 (search for similar items in EconPapers)
Pages: 37
Date: 2021-08-13
New Economics Papers: this item is included in nep-cfn
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Working Paper: Ownership Concentration and Performance of Deteriorating Syndicated Loans (2021)
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DOI: 10.21033/wp-2021-10

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