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Loan Syndication

Paper Session

Saturday, Jan. 6, 2018 12:30 PM - 2:15 PM

Loews Philadelphia, Lescaze
Hosted By: International Banking, Economics, and Finance Association
  • Chair: Julapa Jagtiani, Federal Reserve Bank of Philadelphia

Pipeline Risk in Leveraged Loan Syndication

Max Bruche
,
City University of London
Frederic Malherbe
,
London Business School
Ralf R. Meisenzahl
,
Federal Reserve Board

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.

Global Banks and Syndicated Loan Spreads: Evidence From United States Banks

Edith X. Liu
,
Federal Reserve Board
Jonathan Pogach
,
Federal Deposit Insurance Corporation

Abstract

This paper explores the relationship between bank global exposure and their syndicated loan spreads. Linking syndicated loan information from Dealscan with confidential US bank foreign exposure data and borrower characteristics, we find that more bank global exposure is associated with a higher loan spread that is statistically significant. To analyze this relationship between global banks and loan spreads, we develop a theoretical framework where, in equilibrium, riskier borrowers are more likely to work with global banks. Using a Heckman selection model, we confirm that borrower risk characteristics indeed predict a higher likelihood of having a loan arranged by a global bank. However, after controlling for the bank-borrower selection effect, we continue to find that global banks charge on average an 12.7 bps higher spread on their syndicated loans, as compared with domestically focused banks. Finally, we explore a non-risk based alternative where firms with multinational operations are more likely to work with global banks for international
banking services.

Credit Default Swaps and Bank Loan Sales: Evidence From Bank Syndicated Lending

Iftekhar Hasan
,
Fordham University
Deming Wu
,
Office of the Comptroller of the Currency

Abstract

We empirically examine three channels in the relation between banks’ CDS trading and loan sales. The substitute channel predicts a negative relation between CDS hedging and loan sales, and the complementary channel predicts a positive relation. The credit-enhancement channel predicts a positive relation between banks’ CDS selling and loan sales. Using syndicated loan share ownership data of U.S. banks over the period 2001–2013, we find that the complementary channel dominates the substitute channel, and the credit-enhancement channel plays an important role in bank loan sales.
Discussant(s)
Jose Luis Fillat
,
Federal Reserve Bank of Boston
Michal Kowalik
,
Federal Reserve Bank of Boston
Jens Christensen
,
Federal Reserve Bank of San Francisco
JEL Classifications
  • G2 - Financial Institutions and Services