Concentration of Control Rights in Leveraged Loan Syndicates
73 Pages Posted: 1 May 2017 Last revised: 15 May 2019
Date Written: May 1, 2019
We find that corporate loan contracts frequently concentrate control rights with a subset of lenders. Despite the rise in term loans without financial covenants – so called “covenant-lite” loans – borrowing firms' revolving lines of credit almost always retain traditional financial covenants. This split structure gives revolving lenders the exclusive right and ability to monitor and renegotiate the financial covenants, and we confirm that loans with split control rights are still subject to the discipline of financial covenants. We provide evidence that the rise in split control rights is designed to mitigate bargaining frictions that have arisen with the entry of nonbank lenders and became apparent during the financial crisis.
Keywords: Covenant, Cov-Lite, Leveraged Loans, Monitoring, Control Rights, Institutional Loans
JEL Classification: G21, G23, G38
Suggested Citation: Suggested Citation