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What Do Lead Banks Learn from Leveraged Loan Investors?

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  • Max Bruche
  • Ralf R. Meisenzahl
  • David X. Xu

Abstract

We examine the private information held by nonbank lenders in leveraged loan syndications. In these transactions, lead banks gather information about participant demand through bookbuilding and use it to adjust loan spreads. An upward spread adjustment during bookbuilding strongly predicts the borrower’s future default and prompts banks to raise their internal risk estimates. This suggests that nonbank syndicate participants’ demand reveals information about borrower credit quality unknown to the lead bank before bookbuilding. Our results challenge the conventional view of information asymmetries between banks and nonbank lenders, instead highlighting an element of information complementarity in modern corporate lending.

Suggested Citation

  • Max Bruche & Ralf R. Meisenzahl & David X. Xu, 2025. "What Do Lead Banks Learn from Leveraged Loan Investors?," Berlin School of Economics Discussion Papers 0072, Berlin School of Economics.
    • Handle: RePEc:bdp:dpaper:0072
    DOI: 10.48462/opus4-5921
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    Keywords

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    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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