DP4287 Multiple Lenders and Corporate Distress: Evidence on Debt Restructuring

Author(s): Antje Brunner, Jan Pieter Krahnen
Publication Date: March 2004
Keyword(s): bank lending, bank pool, bankruptcy, coordination risk, distress, reorganization
JEL(s): D74, G21, G33, G34
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=4287

In the recent theoretical literature on lending risk, the common pool problem in multi-bank relationships has been analysed extensively. In this Paper we address this topic empirically, relying on a unique panel dataset that includes detailed credit-fie information on distressed lending relationships in Germany. In particular, it includes information on bank pools: a legal institution aimed at coordinating lender interests in borrower distress. We find that the existence of small bank pools increases the probability of workout success and that coordination costs are positively related to pool size. We identify major determinants of pool formation, in particular the distribution of lending shares among banks, the number of banks, and the severity of the distress shock to the borrower.