How Private Equity Fuels Non-Bank Lending 

50 Pages Posted: 1 May 2023 Last revised: 25 Jun 2024

See all articles by Sharjil Haque

Sharjil Haque

Board of Governors of the Federal Reserve System

Simon Mayer

Carnegie Mellon University

Teng Wang

Board of Governors of the Federal Reserve System

Multiple version iconThere are 2 versions of this paper

Date Written: April 25, 2023

Abstract

We demonstrate how private equity (PE) sponsorship stimulates non-bank participation in the syndicated loan market. Relative to non PE-backed loans, PE-backed loans exhibit lower bank monitoring, lower shares retained by lead banks, and more loan sales to non-banks. These effects are stronger when the sponsor has high reputation or a relationship with the lead bank. Further, high sponsor reputation is linked to improved loan performance. Our findings suggest that PE sponsors' engagement with borrowers reduces asymmetric information in loan sales and substitutes for bank monitoring, allowing banks to retain less skin-in-the-game and to sell larger loan shares to non-banks.

Keywords: Syndicated Loans, Private Equity, LBO, Bank Monitoring, CLO, Securitization, Loan Sales, Lead Share

JEL Classification: G21, G23, G24, G29

Suggested Citation

Haque, Sharjil and Mayer, Simon and Wang, Teng, How Private Equity Fuels Non-Bank Lending  (April 25, 2023). Proceedings of the EUROFIDAI-ESSEC Paris December Finance Meeting 2023, Available at SSRN: https://ssrn.com/abstract=4429521 or http://dx.doi.org/10.2139/ssrn.4429521

Sharjil Haque (Contact Author)

Board of Governors of the Federal Reserve System ( email )

Simon Mayer

Carnegie Mellon University ( email )

Pittsburgh, PA 15213-3890
United States

Teng Wang

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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