Citation

Discussion Paper Details

Please find the details for DP11956 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: Pipeline Risk in Leveraged Loan Syndication

Author(s): Max Bruche, Frédéric Malherbe and Ralf Meisenzahl

Publication Date: April 2017

Keyword(s): Debt overhang, lead arranger share, leveraged loans, pipeline risk and syndicated loans

Programme Area(s): Financial Economics and Monetary Economics and Fluctuations

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 find 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.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=11956

Bibliographic Reference

Bruche, M, Malherbe, F and Meisenzahl, R. 2017. 'Pipeline Risk in Leveraged Loan Syndication'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=11956