Concentration of Control Rights in Leveraged Loan Syndicates

Berlin, Mitchell; Nini, Gregory P.; Yu, Edison

doi:10.21799/frbp.wp.2019.41

Working Paper

Concentration of Control Rights in Leveraged Loan Syndicates

Abstract: We ?nd that corporate loan contracts frequently concentrate control rights with a subset of lenders. Despite the rise in term loans without ?nancial covenants?so-called covenant-lite loans?borrowing ?rms? revolving lines of credit almost always retain traditional ?nancial covenants. This split structure gives revolving lenders the exclusive right and ability to monitor and to renegotiate the ?nancial covenants, and we con?rm that loans with split control rights are still subject to the discipline of ?nancial covenants. We provide evidence that split control rights are designed to mitigate bargaining frictions that have arisen with the entry of nonbank lenders and became apparent during the ?nancial crisis.

Keywords: covenant; cov-lite; institutional loans; control rights; credit agreements;

JEL Classification: G21; G23; G29;

https://doi.org/10.21799/frbp.wp.2019.41