Loan Syndication Participation by Investment Banks and Nonbank Financial Entities

Abstract

We analyze participation by investment banks and other nonbank lenders in syndicated loan financings. We find that investment banks are more likely than commercial banks to lead syndicates to riskier borrowers and they participate more often than commercial banks in the riskier tranches of multi-facility loans. Though non-bank entities such as insurance companies and mutual funds rarely play lead roles in syndications, they also participate more frequently in riskier, multi-facility syndicated credits. Maskara (2010) argues that multi-facility syndicated loans derive economic value from the participation of lender groups with varying levels of risk aversion. We find empirical support for his theoretical arguments.

Keywords: Tranching, Syndicated Loans, Investment Banks

JEL Classification: G21