Nonbank Investors and Loan Renegotiations
57 Pages Posted: 4 Jan 2017 Last revised: 30 Aug 2018
Date Written: August 28, 2018
We document that the structure of syndicates affects term loan renegotiations. Lead banks with large retained shares have a positive effect on renegotiations, while the syndicate diversity among nonbank investors is renegotiation friendly. The latter result derives from the growth of collateralized loan obligations (CLOs) in the syndicated loan market, and the coordination of investment decisions between lead banks and their affiliated CLOs. Our findings highlight previously unrecognized coordination between lead banks and their affiliated CLOs and a novel channel that CLOs support the supply of corporate credit.
Keywords: Corporate loans, CLOs, renegotiations, investor diversity
JEL Classification: G21, G23
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