Pipeline risk in leveraged loan syndication

Bruche, Max, Malherbe, Frederic and Meisenzahlimeon, Ralf (2017) Pipeline risk in leveraged loan syndication. Financial Markets Group Discussion Papers (763). Financial Markets Group, The London School of Economics and Political Science, London, UK.

Text (DP763) - Published Version Download (925kB)

• https://www.fmg.ac.uk/publications/discu...

Abstract

Leveraged term loans are typically arranged by banks but distributed to institutional investors. Using novel data, we find that to elicit investors' willingness to pay, arrangers expose themselves to pipeline risk: They have to retain larger shares when investors are willing to pay less than expected. We argue that the retention of such problematic loans creates a debt overhang problem. Consistent with this, we find that the materialization of pipeline risk for an arranger reduces its subsequent arranging and lending activity. Aggregate time series exhibit a similar pattern, which suggests that the informational friction we identify could amplify the credit cycle.

Item Type:	Monograph (Discussion Paper)
Official URL:	https://www.fmg.ac.uk/
Additional Information:	© 2017 The Authors
Divisions:	Financial Markets Group
Subjects:	H Social Sciences > HC Economic History and Conditions H Social Sciences > HG Finance
JEL classification:	G - Financial Economics > G2 - Financial Institutions and Services > G23 - Pension Funds; Other Private Financial Institutions G - Financial Economics > G2 - Financial Institutions and Services > G24 - Investment Banking; Venture Capital; Brokerage; Rating Agencies G - Financial Economics > G3 - Corporate Finance and Governance > G30 - General
Date Deposited:	05 Jun 2023 23:04
Last Modified:	16 Sep 2023 00:01
URI:	http://eprints.lse.ac.uk/id/eprint/118977

Actions (login required)

View Item