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Bank loan renegotiation and credit default swaps

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  • Clark, Brian
  • Donato, James
  • Francis, Bill B
  • Shohfi, Thomas D

Abstract

Using Roberts (2015) loan-level data from 2000 to 2011, we find that the inception of CDS trading on reference firms’ debt is associated with a decreased number and lower probability of amendments, restatements, and rollovers to existing lenders of bank loans. Reference firms are also less likely to terminate loans prematurely or refinance with different lenders after the inception of CDS trading and tend to exhibit longer loan maturities. Our evidence is consistent with the empty creditor problem arising from CDS trading and the resulting decrease in the negotiation power of borrowers. Our research contributes to understanding how financial innovations alter bank-lending relationships.

Suggested Citation

  • Clark, Brian & Donato, James & Francis, Bill B & Shohfi, Thomas D, 2023. "Bank loan renegotiation and credit default swaps," Journal of Banking & Finance, Elsevier, vol. 151(C).
    • Handle: RePEc:eee:jbfina:v:151:y:2023:i:c:s0378426620301989
    DOI: 10.1016/j.jbankfin.2020.105936
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    More about this item

    Keywords

    CDS; Credit derivatives; Credit default swaps; Empty creditor; Bank loans; Renegotiation;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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