Concentration of control rights in leveraged loan syndicates

Berlin, Mitchell; Nini, Greg; Yu, Edison

doi:10.1016/j.jfineco.2020.02.002

Cited by 85 publications

(12 citation statements)

References 48 publications

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“…Biswas, Ozkan, and Yin (2019) confirm this finding, but also document that nonbank lenders make extensive use of covenants restricting capital expenditures. By contrast, the rise in covenant‐lite term loans did apparently not induce a major shift in covenant design, as banks continue to impose traditional covenants in loan packages through credit line facilities (Berlin, Nini, and Yu 2020). Nonetheless, both nonbank lending and covenant lites are arguably important for our setting.…”

Section: Limitationsmentioning

confidence: 99%

Benign Neglect of Covenant Violations: Blissful Banking or Ignorant Monitoring?

2020

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Theoretically, bank's loan monitoring activity hinges critically on its capitalization. To proxy for monitoring intensity, we use changes in borrowers' investment following loan covenant violations, when creditors can intervene in the governance of the firm. Exploiting granular bank-firm relationships observed in the syndicated loan market, we document substantial heterogeneity in monitoring across banks and through time. Better capitalized banks are more lenient monitors that intervene less with covenant violators. Importantly, this hands-off approach is associated with improved borrowers' performance. Beyond enhancing financial resilience, regulation that requires banks to hold more capital may thus also mitigate the tightening of credit terms when firms experience shocks.

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Section: Limitationsmentioning

confidence: 99%

Benign Neglect of Covenant Violations: Blissful Banking or Ignorant Monitoring?

2020

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“…Our first‐stage results show that NONBANK is positively and significantly related to all three covenant measures: COVDUMMY, COVINDEX1, and COVINDEX2. Thus, nonbank lenders display risk‐mitigating attributes similar to their bank counterparts (see also Berlin et al, 2020). Next, there is a strong and positive association between the number of lenders and covenant measures.…”

Section: Addressing Endogeneitymentioning

confidence: 99%

“…For the measures of lending syndicate to be valid instrumental variables, they must meet both relevance and exclusion conditions. The literature reports a strong link between syndicate structure and covenant design (Berlin et al, 2020; Dass et al, 2020). In addition, Demiroglu and James (2010) provide evidence that the expected costs of loan renegotiation, proxied by lending syndicate size, is negatively related to the degree of covenant restrictions.…”

Section: Addressing Endogeneitymentioning

confidence: 99%

Debt covenants and asset versus equity acquisitions

Jory

Ngo

Nguyen

2021

J of Financial Research

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We examine whether the presence of loan covenants leads firms to choose either an asset or equity acquisitions. Asset acquisitions involve the selective purchase of a target company's assets, and equity acquisitions involve acquisitions of common stocks. We document that firms with loan covenants are more likely to engage in asset acquisitions as opposed to equity acquisitions. Our results are robust to alternative measures of loan covenants and to endogeneity concerns. Furthermore, the association between loan covenants and asset acquisitions is stronger among firms with greater debt covenant intensity, more severe agency problems, and lower profitability. Acquirers facing more intense competition within their industries are also likely to choose asset acquisitions. Our findings suggest that acquirers' incentives to avoid wealth transfer at the expense of debtholders drive the relation between debt covenants and choice of acquisition structure.

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“…In order to achieve an ideal debt portfolio, financial managers face the challenge of balancing the trade-off of each type of debt instrument. Hence, the ideal debt structure limits a firm's liquidation cost and ultimately protects the company from default (Berlin et al, 2020). Recently, several studies have contributed towards the literature pertaining to debt structure, where they have focused on the reasons for changes in the debt structure.…”

Section: Capital Structure and Debt Policymentioning

confidence: 99%

Consistency of Debt Policy: An Intrinsic Role of Business Group Affiliation

Rasheed¹,

Khan²,

Naqvi³

et al. 2021

LJB

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The debt structure remains an area of indispensable concern for businesses across the globe. The organizations are facing difficulty to achieve an optimal capital structure due to inconsistent debt policy. This study investigates the firm's debt policy consistency over a period of twenty-two years after its establishment by observing leverage, debt maturity, debt granularity, and debt specialization as important measures. It has employed a unique dataset covering all the non-financial Pakistani firms listing from 1997 to 2018. The results depict that a firm's debt policy remains remarkably consistent over time, confirming that the initially adopted debt policy is a significant determinant of its future debt policies. However, it is noteworthy that the consistency of the debt policy has shown a declining trend due to the firm's age and size. Additionally, we have examined the effect of business group affiliation on the consistency of debt policy, with further segregation in terms of the financial firm's presence in a group or not. The findings show that a group affiliated firm has more access to the debt market than an unaffiliated firm. Further, the existence of a financial firm in a group serves as an extended financial market that help them to survive in a distress situation. This study will assist the managers in understanding the significance of initial debt policy on the continuity of future policies that help them in financial decision-making.

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Concentration of control rights in leveraged loan syndicates

Cited by 85 publications

References 48 publications

Benign Neglect of Covenant Violations: Blissful Banking or Ignorant Monitoring?

Benign Neglect of Covenant Violations: Blissful Banking or Ignorant Monitoring?

Debt covenants and asset versus equity acquisitions

Consistency of Debt Policy: An Intrinsic Role of Business Group Affiliation

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