Do Lending Relationships Matter When Loans Are Securitized?

78 Pages Posted: 18 Feb 2023

Date Written: 2022


This paper documents a novel ``fire-sale insurance" channel through which lending relationships help borrowers when their loans are securitized into CLOs. We document that CLO managers avoid selling the loans of firms related to their underwriter bank when liquidity shocks induce selloffs. Immunity from fire-sales translates into higher borrowing and investment rates for relationship firms even when their CLO investors are under stress. Banks benefit from higher fee revenue and compensate the CLO managers by arranging cheaper debt financing on their new CLOs. These results highlight why relationships continue to remain valuable in the originate-to-distribute model of banking.

Keywords: Lending Relationships, Collateralized Loan Obligations, Fire Sale, Leveraged Loans

JEL Classification: G11, G21, G23, G32, G34

Suggested Citation

Bhardwaj, Abhishek and Mukherjee, Saptarshi, Do Lending Relationships Matter When Loans Are Securitized? ( 2022). Available at SSRN: or

Abhishek Bhardwaj (Contact Author)

Tulane University ( email )

6823 St Charles Ave
New Orleans, LA 70118
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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