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Syndicated Loan Spreads and the Composition of the Syndicate

51 Pages Posted: 29 Aug 2012 Last revised: 26 Feb 2016

Jongha Lim

California State University - Fullerton

Bernadette A. Minton

Ohio State University (OSU) - Department of Finance

Michael S. Weisbach

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: May 28, 2013

Abstract

During the past decade non-bank institutional investors are increasingly taking larger roles in the corporate lending than they historically have played. These non-bank institutional lenders typically have higher required rates of return than banks, but invest in the same loan facilities. In a sample of 20,031 leveraged loan facilities originated between 1997 and 2007, facilities including a non-bank institution in their syndicates have higher spreads than otherwise identical bank-only facilities. Contrary to risk-based explanations of this finding, non-bank facilities are priced with premia relative to bank-only facilities in the same loan package. These non-bank premia are substantially larger when a hedge or private equity fund is one of the syndicate members. Consistent with the notion that firms are willing to pay a premium when loan facilities are particularly important to them, the non-bank premia are larger when borrowing firms face financial constraints and when capital is less available from banks.

Keywords: hedge funds, syndicated loans, spread premiums

JEL Classification: G21, G23, G32

Suggested Citation

Lim, Jongha and Minton, Bernadette A. and Weisbach, Michael S., Syndicated Loan Spreads and the Composition of the Syndicate (May 28, 2013). Journal of Financial Economics (JFE), Vol. 111, No. 1, 2014; Fisher College of Business Working Paper No. 2012-03-015; Charles A. Dice Center Working Paper No. 2012-15. Available at SSRN: https://ssrn.com/abstract=2138209 or http://dx.doi.org/10.2139/ssrn.2138209

Jongha Lim

California State University - Fullerton ( email )

SGMH 5170
Fullerton, CA 92831
United States
657-278-7987 (Phone)

Bernadette A. Minton

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States
614-688-3125 (Phone)
614-292-2359 (Fax)

Michael S. Weisbach (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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