Does Loan Securitization Insulate Borrowers from Idiosyncratic Investor Shocks?

45 Pages Posted: 14 Mar 2024

See all articles by Abhishek Bhardwaj

Abhishek Bhardwaj

Tulane University

Shan Ge

New York University (NYU) - Department of Finance

Saptarshi Mukherjee

Northeastern University

Date Written: August 14, 2022


65% of syndicated term loans are now securitized and ultimately funded by CLO investors. Presumably, with loans securitized and distributed to a large number of investors, borrowing firms are not only insulated from shocks to banks but also from idiosyncratic shocks to nonbank investors in CLOs. We provide evidence that, due to concentrated capital and sticky relationships, the CLO market exposes firms to shocks that are idiosyncratic to insurance companies, which are the largest group of CLO investors. We present three main findings. First, when insurers experience favorable cash flows, they are more likely to invest in CLO deals, especially deals by CLO managers that they previously invested with. Second, when CLO managers are more exposed to insurers' favorable cash flows through past relationships, they are more likely to launch new CLO deals. Third, among private borrowing firms, those more affected (through sticky relationships with CLO managers) are more likely to take new loans. Our results imply that substantial frictions exist in the loan securitization market that cause firms to be exposed to idiosyncratic investor shocks.

Keywords: Collateralized Loan Obligation (CLO), Securitization, Insurance Companies, Corporate Borrowing, Loans

JEL Classification: G22, G23, G32

Suggested Citation

Bhardwaj, Abhishek and Ge, Shan and Mukherjee, Saptarshi, Does Loan Securitization Insulate Borrowers from Idiosyncratic Investor Shocks? (August 14, 2022). Available at SSRN: or

Abhishek Bhardwaj

Tulane University ( email )

6823 St Charles Ave
New Orleans, LA 70118
United States


Shan Ge (Contact Author)

New York University (NYU) - Department of Finance ( email )

New York, NY
United States

Saptarshi Mukherjee

Northeastern University ( email )

360 Huntington Ave
409C Hayden Hall
Boston, MA Massachusetts 02115
United States
02115 (Fax)

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