Equity-Holding Institutional Lenders: Do they Receive Better Terms?
AbstractThe past decade has seen significant changes in the structure of the corporate lending market, with non-commercial bank institutional investors playing larger roles than they historically have played. In addition, non-commercial bank institutional lenders are often equity holders in their borrowing firms. In our sample of 11,137 tranches of institutional “leveraged” loans, 2,008 (18%) have a non-commercial bank institution that also owns at least 0.1% of the firm’s equity. Such “dual holder” loan tranches have higher spreads than otherwise similar loan tranches without equity holder participation. The dual holder premium is present for both revolver and term loans, and exists within all non-investment grade credit rating classes. Contrary to risk-based explanations of this finding, dual holder tranches are priced with premiums relative to other tranches of the same loan package. Dual holding premiums are higher when the equity-holder’s stake is larger, when the dual-holder’s share in the loan is larger, and when the equity holder is a hedge fund or a private equity fund. These premiums likely represent additional compensation to dual holders for providing capital to firms when the firms are having difficulty raising capital otherwise.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17856.
Date of creation: Feb 2012
Date of revision:
Publication status: published as “Syndicated Loan Spreads and the Composition of the Syndicate” (with Jongha Lim and Bernadette A. Minton), Journal of Financial Economics, Vol. 111 (January 2014), pp. 45-69.
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Other versions of this item:
- Lim, Jongha & Minton, Bernadette A. & Weisbach, Michael S., 2012. "Equity-Holding Institutional Lenders: Do They Receive Better Terms?," Working Paper Series 2012-05, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G3 - Financial Economics - - Corporate Finance and Governance
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-03-08 (All new papers)
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