The Impact of Arrangers and Buyout Sponsors on Loan Pricing in Lbos: A Cross Border Study

Abstract

This paper assesses the impact of arrangers and buyout sponsors on loan pricing for LBOs in the U.S. and European markets. We find that the ability of arrangers and sponsors to extract additional information plays an important role in corporate loan pricing. Using a unique and large dataset on syndicated loans, we find that loan pricing has a home bias such that domestic lenders are able to extract higher rents while foreign lenders when penetrating internationals market result in lower AIS spreads. We find the presence of buyout sponsors results in higher rents despite the benefits of monitoring. We find the lender to borrower relationship associated with single arrangers and multiple providers result in reduced agency cost and greater monitoring such that the AIS spread is smaller. We also find that sponsors play an important role in monitoring LBOs and syndicated loan pricing. We find that multi-arrangers loans are larger in size with higher risk characteristics but incur smaller AIS spreads.

Keywords: Leveraged Buyouts, Syndicated Loans, Loan Pricing