Concentration of Control Rights in Leveraged Loan Syndicates

Abstract

Corporate loan contracts frequently concentrate control rights with a subset of lenders. In a large fraction of leveraged loans, which typically include a revolving line of credit and a term loan, the revolving lenders have the exclusive right and ability to monitor and renegotiate the financial covenants in the governing credit agreements. Concentration is more common in loans that include nonbank institutional lenders and in loans originated subsequent to the financial crisis, when recognition of bargaining frictions increased. We conclude that concentrated control rights maintain the benefits of lender monitoring and minimize the costs of renegotiation associated with larger and more diverse lending syndicates.

Keywords: corporate loans, credit agreements, lines of credit