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Tranching in the Syndicated Loan Market

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Author Info

  • Cumming, D.
  • McCahery, J.A.
  • Schwienbacher, A.

    (Tilburg University, Center for Economic Research)

Abstract

We use data comprising over 100,000 loans from 115 countries during 1995-2009 to examine factors that affect the extent of loan tranching, and the range of tranche spreads. The data show five factors that drive them: asymmetric information, borrower risk, transaction costs, the presence of institutional investors, and the legal system. Tranching is more extensive and generates greater differences in spreads between tranches of a same loan when asymmetric information and risk are more pronounced. Economic and institutional factors driving tranching are more directly applicable to non-investment grade loans. For developing countries, the data highlight factors that affect the extent of tranching but such factors show little sensitivity to the pricing of the relative spreads.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2011-008.

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Date of creation: 2011
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Handle: RePEc:dgr:kubcen:2011008

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Web page: http://center.uvt.nl

Related research

Keywords: Loan; Debt finance; Tranche; Law and finance;

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  1. Maciej Firla-Cuchra & Tim Jenkinson, 2005. "Security Design in the Real World: Why are Securitization Issues Tranched?," Economics Series Working Papers 225, University of Oxford, Department of Economics.
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