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Syndicated loan spreads and the composition of the syndicate

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  • Lim, Jongha
  • Minton, Bernadette A.
  • Weisbach, Michael S.

Abstract

During the past decade, non-bank institutional investors are increasingly taking larger roles in the corporate lending than they historically have played. These non-bank institutional lenders typically have higher required rates of return than banks, but invest in the same loan facilities. In a sample of 20,031 leveraged loan facilities originated between 1997 and 2007, facilities including a non-bank institution in their syndicates have higher spreads than otherwise identical bank-only facilities. Contrary to risk-based explanations of this finding, non-bank facilities are priced with premiums relative to bank-only facilities in the same loan package. These non-bank premiums are substantially larger when a hedge or private equity fund is one of the syndicate members. Consistent with the notion that firms are willing to pay a premium when loan facilities are particularly important to them, the non-bank premiums are larger when borrowing firms face financial constraints and when capital is less available from banks.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Financial Economics.

Volume (Year): 111 (2014)
Issue (Month): 1 ()
Pages: 45-69

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Handle: RePEc:eee:jfinec:v:111:y:2014:i:1:p:45-69

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Web page: http://www.elsevier.com/locate/inca/505576

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Keywords: Syndicated loans; Spread premiums; Hedge funds;

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References

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  1. Massoud, Nadia & Nandy, Debarshi & Saunders, Anthony & Song, Keke, 2011. "Do hedge funds trade on private information? Evidence from syndicated lending and short-selling," Journal of Financial Economics, Elsevier, vol. 99(3), pages 477-499, March.
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