Agree to Disagree: Within-Syndicate Conflict and Syndicated Loan Contracting

43 Pages Posted: 31 Aug 2020

See all articles by Yongqiang Chu

Yongqiang Chu

Belk College of Business, UNC Charlotte

Luca Xianran Lin

University of Navarra, IESE Business School

Zhanbing Xiao

The University of British Columbia

Date Written: July 21, 2020

Abstract

Prior studies show that creditors’ simultaneous equity holding mitigates shareholder-creditor conflict. We show that a new type of conflict arises in syndicates with such dual holders, due to the heterogeneity across syndicate members’ equity-to-loan positions. We find that loans with higher within-syndicate conflicts rely less on performance covenants, which serve as tripwires to facilitate ex-post control transfer from shareholders to creditors. Renegotiation is also less likely as conflict increases. Instead, high-conflict loans rely more on capital covenants, which align shareholder-creditor interests ex-ante and incentivize shareholders to monitor. Moreover, lead arrangers retain larger shares in high-conflict loans to commit to monitoring beyond contractual provisions. Finally, high-conflict loans tend to be smaller, shorter, and more costly.

Keywords: Within-Syndicate Conflict, Syndicated Loan, Dual Holders, Loan Covenants

JEL Classification: G23, G32, G34

Suggested Citation

Chu, Yongqiang and Lin, Luca Xianran and Xiao, Zhanbing, Agree to Disagree: Within-Syndicate Conflict and Syndicated Loan Contracting (July 21, 2020). Available at SSRN: https://ssrn.com/abstract=3658451 or http://dx.doi.org/10.2139/ssrn.3658451

Yongqiang Chu

Belk College of Business, UNC Charlotte ( email )

9201 University City Boulevard
Charlotte, NC 28223
United States
7046877695 (Phone)

Luca Xianran Lin (Contact Author)

University of Navarra, IESE Business School ( email )

Avenida Pearson, 21
IESE Business School, H-300
Barcelona, Barcelona 08034
Spain

HOME PAGE: http://lucaxlin.com

Zhanbing Xiao

The University of British Columbia ( email )

Vancouver, British Columbia
Canada

HOME PAGE: http://www.zhanbingxiao.com

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