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Discussion Paper
Insurance Companies and the Growth of Corporate Loan Securitization
Collateralized loan obligation (CLO) issuances in the United States increased by a factor of thirteen between 2009 and 2019, with the volume of outstanding CLOs more than doubling to approach $647 billion by the end of that period. While researchers and policy makers have been investigating the impact of this growth on the cost and riskiness of corporate loans and the potential implications for financial stability, less attention has been paid to the drivers of this phenomenon. In this post, which is based on our recent paper, we shed light on the role that insurance companies have played in ...
Working Paper
Concentration of Control Rights in Leveraged Loan Syndicates
Corporate loan contracts frequently concentrate control rights with a subset of lenders. In a large fraction of leveraged loans, which typically include a revolving line of credit and a term loan, the revolving lenders have the exclusive right and ability to monitor and renegotiate the financial covenants in the governing credit agreements. Concentration is more common in loans that include nonbank institutional lenders and in loans originated subsequent to the financial crisis, when recognition of bargaining frictions increased. We conclude that concentrated control rights maintain the ...
Report
Insurance Companies and the Growth of Corporate Loans' Securitization
CLOs have emerged as the fastest growing asset class in insurance companies' portfolios after the Global Financial Crisis. This was induced by insurers' capital regulation which treats CLO tranches the same as equally-rated corporate bonds, despite the former offering higher yields. Consequently, insurance companies developed a preference for CLOs over corporate bonds, which was strengthened by a 2010 regulatory reform. Insurers' CLO investments shaped the CLO market, influencing deal structures and fueling its rapid post-crisis growth. This expanded credit access for corporate borrowers, ...