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Did Securitization Affect the Cost of Corporate Debt?

  • Nadauld, Taylor D.

    (Brigham Young University)

  • Weisbach, Michael S.

    (Ohio State University)

This paper investigates whether the securitization of corporate bank loans had an impact on the price of corporate debt. Our results suggest that loans that are subsequently securitized are associated with a lower spread of 10-17 basis points relative to loans that are not subsequently securitized. To identify the particular role of securitization, we employ a difference in differences approach and consider loan characteristics that are associated with securitization such as the payoff structure and the identity of the originating bank. Spreads on "securitization-friendly" Term Loan B facilities relative to either Term Loan A facilities or revolvers decline with the 2004-2007 Securitization Boom. This decline is driven almost completely by loans originated by banks active in CLO origination. The results are consistent with the view that securitization caused a reduction in the cost of capital.

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File URL: http://www.cob.ohio-state.edu/fin/dice/papers/2010/2010-16.pdf
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Paper provided by Ohio State University, Charles A. Dice Center for Research in Financial Economics in its series Working Paper Series with number 2010-16.

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Date of creation: Sep 2010
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Handle: RePEc:ecl:ohidic:2010-16
Contact details of provider: Phone: (614) 292-8449
Web page: http://www.cob.ohio-state.edu/fin/dice/list.htm
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  1. Yuliya Demyanyk & Otto Van Hemert, 2009. "Understanding the subprime mortgage crisis," Proceedings, Federal Reserve Bank of San Francisco, issue Jan.
  2. Efraim Benmelech & Nittai K. Bergman, 2008. "Collateral Pricing," NBER Working Papers 13874, National Bureau of Economic Research, Inc.
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  12. Giovanni Dell'Ariccia & Luc Laeven & Deniz Igan, 2008. "Credit Booms and Lending Standards; Evidence From the Subprime Mortgage Market," IMF Working Papers 08/106, International Monetary Fund.
  13. Nicola Gennaioli & Andrei Shleifer & Robert Vishny, 2010. "Financial Innovation and Financial Fragility," Working Papers 2010.114, Fondazione Eni Enrico Mattei.
  14. A. Burak Güner, 2006. "Loan Sales and the Cost of Corporate Borrowing," Review of Financial Studies, Society for Financial Studies, vol. 19(2), pages 687-716.
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  16. Peter M. DeMarzo, 2005. "The Pooling and Tranching of Securities: A Model of Informed Intermediation," Review of Financial Studies, Society for Financial Studies, vol. 18(1), pages 1-35.
  17. Atif Mian & Amir Sufi, 2009. "The Consequences of Mortgage Credit Expansion: Evidence from the U.S. Mortgage Default Crisis," The Quarterly Journal of Economics, MIT Press, vol. 124(4), pages 1449-1496, November.
  18. Ivashina, Victoria, 2009. "Asymmetric information effects on loan spreads," Journal of Financial Economics, Elsevier, vol. 92(2), pages 300-319, May.
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  20. Kara, Alper & Marqués-Ibáñez, David & Ongena, Steven, 2011. "Securitization and lending standards: evidence from the wholesale loan market," Working Paper Series 1362, European Central Bank.
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