DP3030 Corporate Debt Restructuring: Evidence on Lending Coordination in Financial Distress

Author(s): Antje Brunner, Jan Pieter Krahnen
Publication Date: October 2001
Keyword(s): bank lending, coordination risk, distress, workout
JEL(s): D74, G21, G33, G34
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=3030

We analyse the coordination problem in multi-creditor relationships empirically, relying on a unique panel data set that contains detailed credit-file information on distressed lending relationships in Germany, including information on creditor pools, a legal institution aiming at coordinating lender interests in borrower distress. We report three major findings. First, the existence of creditor pools increases the probability of workout success. Second, the results are consistent with coordination costs being positively related to pool size. Third, major determinants of pool formation are found to be the number of banks, the distribution of lending shares, and the severity of the distress shock.