Report

The Myth of the Lead Arranger’s Share


Abstract: We make use of Shared National Credit Program (SNC) data to examine syndicated loans in which the lead arranger retains no stake. We find that the lead arranger sells its entire loan share for 27 percent of term loans and 48 percent of Term B loans, typically shortly after syndication. In contrast to existing asymmetric information theories on the role of the lead share, we find that loans that are sold are less likely to become non-performing in the future. This result is robust to several different measures of loan performance and is reflected in subsequent secondary market prices. We explore syndicated loan underwriting risk as an alternative theory that may help explain this result.

Keywords: loan sales; lead arranger; syndicated lending;

JEL Classification: G21; G24; G30;

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Provider: Federal Reserve Bank of New York

Part of Series: Staff Reports

Publication Date: 2020-05-01

Number: 922