Tranching in the Syndicated Loan Market
York University - Schulich School of Business
Joseph A. McCahery
Tilburg University - School of Law; European Banking Center (EBC); European Corporate Governance Institute (ECGI); Duisenberg School of Finance; Tilburg Law and Economics Center (TILEC)
Univ. Lille Nord de France - SKEMA Business School
March 15, 2010
Tilburg Law School Research Paper No. 009/2010
We use data comprising over 100,000 loans from 115 countries during 1995-2009 to examine factors that affect the extent of loan tranching, and the range of tranche spreads. The data show five factors that drive them: asymmetric information, borrower risk, transaction costs, the presence of institutional investors, and the legal system. Tranching is more extensive and generates greater differences in spreads between tranches of a same loan when asymmetric information and risk are more pronounced. Economic and institutional factors driving tranching are more directly applicable to non-investment grade loans. For developing countries, the data highlight factors that affect the extent of tranching but such factors show little sensitivity to the pricing of the relative spreads.
Number of Pages in PDF File: 46
Keywords: Loan, Debt finance, Tranche, Law and finance
JEL Classification: G2, G21, K22working papers series
Date posted: January 6, 2010 ; Last revised: November 4, 2010
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