Large customer-supplier links and syndicate loan structure

Abstract

Relationships between large customers and suppliers expose lenders to additional risks. These risks may force lead agents to retain a larger share of syndicated loans, reducing loan-level diversification, and, in turn, increasing the required interest rate spread. Consistent with this view, we find that borrowers' dependence on a few larger customers or suppliers positively affects the cost of the loans indirectly through the loan structure. Instead, we do not observe a direct cost associated with large customer-supplier links, suggesting that lead agents do not increase the interest rate spread as compensation for the additional risks of dealing with borrowers with large customer-supplier links per se. Finally, we document an inverted U-shaped relationship between the length of the large customer-supplier link and the loan share held by the lead agent.

Lender individualism and monitoring: Evidence from syndicated loans

“…Finally, the results of this study offer a novel understanding of the strands of literature examining the mechanisms underlying the structure of loan formation (Lee and Mullineaux, 2004;Sufi, 2007;Ivashina, 2009;Lin, 2012;Croci et al, 2021). In this respect, our findings highlight that individualist lead bank CEOs are more likely to form more dispersed loan syndicates.…”

“…We only consider the loans for which the borrowing firms' and banks' data can be matched to Compustat, and the financial variables employed in the study are available. The analysis is run at the facility level in line with previous studies (e.g., Campello and Gao, 2017;Cumming et al, 2020;Croci et al, 2021). Indeed, the loan tranches or facilities provide a more accurate picture of the syndicated loan market as the lead agent could offer different contractual terms at this level.…”

Shareholder litigation and bank risk

“…(2009), He and Hu (2016) and Croci et al (2021), we construct two pricing variables, the all-in spread down (AISD) and total borrowing cost (TBC). A higher AISD or TBC is associated with a higher loan price.…”

Lending and risk controls for BHCs after the Dodd–Frank act

“…(5) relative to the fraction of the loan it retains (Croci et al, 2021;Degl'Innocenti et al, 2022;Gustafson et al, 2021;Sufi, 2007). Consequently, holding a large loan fraction represents a mechanism to spur the lead agent to exert the optimal level of monitoring (e.g., Gustafson et al, 2021;Holmstrom & Tirole, 1997;Lin et al, 2012).…”

“…As a further test to corroborate this evidence, we consider whether the DFA's passage may have altered the loan share retained by the lead BHC in the syndicate loan. This matters because the lead agent's potential loss is relative to the fraction of the loan it retains (Croci et al, 2021; Degl'Innocenti et al, 2022; Gustafson et al, 2021; Sufi, 2007). Consequently, holding a large loan fraction represents a mechanism to spur the lead agent to exert the optimal level of monitoring (e.g., Gustafson et al, 2021; Holmstrom & Tirole, 1997; Lin et al, 2012).…”