Do Bondholders Value Senior Loan Lender Control Rights?

50 Pages Posted: 1 Nov 2015 Last revised: 5 Jan 2017

See all articles by Bo Li

Bo Li

Tsinghua University - School of Economics & Management

Lynnette D. Purda

Queen's University - Smith School of Business

Wei Wang

Queen's University - Smith School of Business

Date Written: March 1, 2016

Abstract

We find that senior loan lender control is positively associated with a firm’s corporate bond yield spread at issuance. A one standard deviation change in the number of covenants on the strictest loan on a firm’s balance sheet is associated with a 15 basis points higher yield spread at bond issuance. Our results are invariant to using the number of financial covenants or covenant strictness to measure senior loan lender control. Using lender-specific shocks for identification produces consistent results. We further find that the positive association of loan lender control and bond yield is more pronounced for issuers with higher default risk and issuers with dispersed bondholders but less pronounced for issuers with relationship lenders.

Keywords: Creditor control; creditor conflict; covenants; syndicated loans; corporate bonds; governance

JEL Classification: G30, G33, G34

Suggested Citation

Li, Bo and Purda, Lynnette D. and Wang, Wei, Do Bondholders Value Senior Loan Lender Control Rights? (March 1, 2016). Available at SSRN: https://ssrn.com/abstract=2684225 or http://dx.doi.org/10.2139/ssrn.2684225

Bo Li

Tsinghua University - School of Economics & Management ( email )

Beijing, 100084
China

Lynnette D. Purda

Queen's University - Smith School of Business ( email )

Smith School of Business - Queen's University
143 Union Street
Kingston, Ontario K7L 3N6
Canada
613-533-6980 (Phone)

Wei Wang (Contact Author)

Queen's University - Smith School of Business ( email )

Queen's University-Smith School of Business
143 Union Street
Kingston, Ontario K7L 3N6
Canada

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