Institutional Investors and Loan Dynamics: Evidence from Loan Renegotiations
63 Pages Posted: 21 Jun 2017 Last revised: 6 Apr 2019
Date Written: March 25, 2019
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: Suggested Citation