Abstract

http://ssrn.com/abstract=1344068
 
 

References (43)



 
 

Citations (14)



 


 



Securitization without Adverse Selection: The Case of CLOs


Effi Benmelech


Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Jennifer Dlugosz


Washington University in Saint Louis - John M. Olin Business School

Victoria Ivashina


Harvard University; National Bureau of Economic Research (NBER)

September 6, 2011

AFA 2010 Atlanta Meetings Paper

Abstract:     
In this paper, we investigate whether securitization was associated with risky lending in the corporate loan market by examining the performance of individual loans held by CLOs. We employ two different datasets that identify loan holdings for a large set of CLOs and find that adverse selection problems in corporate loan securitizations are less severe than commonly believed. Using a battery of performance tests, we find that loans securitized before 2005 performed no worse than comparable unsecuritized loans originated by the same bank. Even loans originated by the bank that acts as the CLO underwriter do not show underperformance relative to the rest of the CLO portfolio. While there is some evidence of underperformance for securitized loans originated between 2005 and 2007, it is not consistent across samples, performance measures, and horizons. Overall, we argue that the securitization of corporate loans is fundamentally different from securitization of other assets classes because securitized loans are fractions of syndicated loans. Therefore, mechanisms used to align incentives in a lending syndicate are likely to reduce adverse selection in the choice of CLO collateral.

Number of Pages in PDF File: 58

Keywords: Structured finance, Collateralized loan obligations (CLOs), CDOs, Syndicated loans

JEL Classification: G20, G21, G23, D82

working papers series


Download This Paper

Date posted: February 16, 2009 ; Last revised: April 16, 2013

Suggested Citation

Benmelech, Effi and Dlugosz, Jennifer and Ivashina, Victoria, Securitization without Adverse Selection: The Case of CLOs (September 6, 2011). AFA 2010 Atlanta Meetings Paper. Available at SSRN: http://ssrn.com/abstract=1344068 or http://dx.doi.org/10.2139/ssrn.1344068

Contact Information

Efraim Benmelech
Harvard University - Department of Economics ( email )
Littauer Center
Cambridge, MA 02138
United States
617-496-4787 (Phone)
617-495-8570 (Fax)
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Jennifer Dlugosz
Washington University in Saint Louis - John M. Olin Business School ( email )
One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States
Victoria Ivashina (Contact Author)
Harvard University ( email )
Harvard Business School
Baker Library 233
Boston, MA 02163
United States
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Feedback to SSRN


Paper statistics
Abstract Views: 4,029
Downloads: 857
Download Rank: 13,514
References:  43
Citations:  14

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo3 in 0.531 seconds