Institutional Investors and Loan Dynamics: Evidence from Loan Renegotiations

63 Pages Posted: 21 Jun 2017 Last revised: 6 Apr 2019

See all articles by Mehdi Beyhaghi

Mehdi Beyhaghi

Federal Reserve Banks - Federal Reserve Bank of Richmond

Ca Nguyen

University of Texas at San Antonio

John K. Wald

University of Texas at San Antonio

Date Written: March 25, 2019

Abstract

We examine the probability of exit for different types of investors in the syndicated loan market, as well as how the entry and exit of different types of investors is associated with changes in loan characteristics. Nonbanks, particularly CLOs, closed-end funds, and mutual funds, are more likely than bank lenders to exit the syndicate rather than to participate in the renegotiated loan. For mutual funds, greater net fund outflows imply a greater likelihood of exit, and this finding is consistent with nonbank lending creating greater systemic risk (Stein, 2013). For most nonbanks, the likelihood of an exit increases if the financial condition of the borrower improves and the potential for higher spreads wanes. Controlling for borrower risk, the addition of most nonbank institutions, in contrast to banks, is accompanied by an increase in loan spreads, but no significant increase in the number or tightness of covenants.

Keywords: Nonbank Institutional Investors, Loan Renegotiation, Loan Path, Syndicated Loans, Funding Risk

JEL Classification: G21, G23, G32

Suggested Citation

Beyhaghi, Mehdi and Nguyen, Ca and Wald, John K., Institutional Investors and Loan Dynamics: Evidence from Loan Renegotiations (March 25, 2019). Available at SSRN: https://ssrn.com/abstract=2989972 or http://dx.doi.org/10.2139/ssrn.2989972

Mehdi Beyhaghi

Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

Ca Nguyen

University of Texas at San Antonio ( email )

One UTSA Circle
San Antonio, TX 78249
United States

John K. Wald (Contact Author)

University of Texas at San Antonio ( email )

1 UTSA Circle
San Antonio, TX 78249
United States
210-458-6324 (Phone)

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