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Pipeline Risk in Leveraged Loan Syndication

76 Pages Posted: 26 Apr 2017  

Max Bruche

Cass Business School, City University London; Financial Markets Group (LSE)

Frederic Malherbe

London Business School

Ralf R. Meisenzahl

Federal Reserve Board

Multiple version iconThere are 2 versions of this paper

Date Written: 2017-04-06


Leveraged term loans are typically arranged by banks but distributed to institutional investors. Using novel data, we find that to elicit investors' willingness to pay, arrangers expose themselves to pipeline risk: They have to retain larger shares when investors are willing to pay less than expected. We argue that the retention of such problematic loans creates a debt overhang problem. Consistent with this, we find that the materialization of pipeline risk for an arranger reduces its subsequent arranging and lending activity. Aggregate time series exhibit a similar pattern, which suggests that the informational friction we identify could amplify the credit cycle.

Keywords: Debt Overhang, Lead Arranger Share, Leveraged Loans, Pipeline Risk, Syndicated Loans

JEL Classification: G23, G24, G30

Suggested Citation

Bruche, Max and Malherbe, Frederic and Meisenzahl, Ralf R., Pipeline Risk in Leveraged Loan Syndication (2017-04-06). FEDS Working Paper No. 2017-048. Available at SSRN: or

Max Bruche (Contact Author)

Cass Business School, City University London ( email )

106 Bunhill Row
London, EC1Y 8TZ
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+44 (20) 7040 5106 (Phone)
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Financial Markets Group (LSE) ( email )

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Frederic Malherbe

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

Ralf Meisenzahl

Federal Reserve Board ( email )

20th and C Streets, NW
Washington, DC 20551
United States

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