Agree to Disagree: Within-Syndicate Conflicts and Covenant Design

46 Pages Posted: 31 Aug 2020 Last revised: 28 Mar 2023

See all articles by Yongqiang Chu

Yongqiang Chu

Belk College of Business, UNC Charlotte

Luca X. Lin

HEC Montreal - Department of Finance

Zhanbing Xiao

Harvard University

Date Written: May 31, 2022


Lenders' simultaneous equity holdings introduce conflicts of interest among members of syndicated loans. The heterogeneity in lenders' relative equity-to-loan positions complicates ex-post renegotiation. We argue that lenders address such within-syndicate conflicts with financial covenant design to improve contracting efficiency. We show that loans with higher conflicts rely less on performance-based covenants, which serve as tripwires to facilitate ex-post control transfer and require coordination among syndicate members. Instead, high-conflict loans rely more on capital-based covenants to align shareholder-creditor interest ex-ante and incentivize shareholder monitoring. Furthermore, voting rules on loan amendments during ex-post renegotiations are stricter in high-conflict loans, by requiring consent from more syndicate members. Overall, these results suggest that such conflicts can reduce capital flexibility and renegotiation efficiency for the borrowers.

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 Conflicts and Covenant Design (May 31, 2022). Available at SSRN: or

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)

HEC Montreal - Department of Finance ( email )

3000 Chemin de la Cote-Sainte-Catherine
Montreal, Quebec H3T 2A7

Zhanbing Xiao

Harvard University ( email )

Cambridge, MA
United States


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