Concentration of Control Rights in Leveraged Loan Syndicates

64 Pages Posted: 7 Sep 2017 Last revised: 7 Oct 2017

See all articles by Mitchell Berlin

Mitchell Berlin

Federal Reserve Bank of Philadelphia - Research Department

Greg Nini

Drexel University - Department of Finance

Edison Yu

Federal Reserve Bank of Philadelphia

Multiple version iconThere are 2 versions of this paper

Date Written: 2017-07-31

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, line of credit

Suggested Citation

Berlin, Mitchell and Nini, Gregory and Yu, Edison, Concentration of Control Rights in Leveraged Loan Syndicates (2017-07-31). FRB of Philadelphia Working Paper No. 17-22. Available at SSRN: https://ssrn.com/abstract=3029755

Mitchell Berlin (Contact Author)

Federal Reserve Bank of Philadelphia - Research Department ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
215-574-3822 (Phone)
215-574-4364 (Fax)

Gregory Nini

Drexel University - Department of Finance ( email )

LeBow College of Business
Philadelphia, PA 19104
United States

Edison Yu

Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

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