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Board of Governors of the Federal Reserve System (US)
Finance and Economics Discussion Series
Pipeline Risk in Leveraged Loan Syndication
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.
Cite this item
Max Bruche & Frederic Malherbe & Ralf R. Meisenzahl, Pipeline Risk in Leveraged Loan Syndication, Board of Governors of the Federal Reserve System (US), Finance and Economics Discussion Series 2017-048, 06 Apr 2017.
- 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
Keywords: Debt Overhang ; Lead Arranger Share ; Leveraged Loans ; Pipeline Risk ; Syndicated Loans
This item with handle RePEc:fip:fedgfe:2017-48
is also listed on EconPapers
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