Mind the Gap: The Difference between U.S. And European Loan Rates

Abstract

Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW. AbstractWe analyze differences in the pricing of syndicated loans between U.S. and European loans. For credit lines, U.S. borrowers pay significantly higher spreads, but also lower fees, resulting in similar total costs of borrowing in both markets. For term loans, U.S. firms pay significantly higher spreads. While European firms across the rating spectrum issue terms loans, only low quality U.S. firms rely on term loans. U.S. issuers perform worse after loan origination compared to European issuers, which explains 30% of the spread differential. Increasing loan supply by institutional lenders in the U.S. since 2003 eventually fully removed the term loan pricing gap.JEL-Classification: G30, G20, G15

An Analysis of Syndicated Loan Announcements During the Global Financial Crisis

“…Using the January 2004-December 2012 period, 8,867 syndicated loan announcements are obtained and used to examine the impact of the financial crisis. Similar to Gasbarro et al (2004), 16 we partition loans based on loan types: 13 The claim that more screening and monitoring are required for borrowers in the middle of the credit ratings is consistent with Diamond (1991) and Berg et al (2017). 14 Berg et al (2017) consider loan types, loan purpose, and borrower ratings in their analyses, and the partitions in this study parallels their approach.…”

Market response to syndicated loan announcements from high‐profile failed and acquiring banks during the global financial crisis

“…In order to more thoroughly investigate loan announcements, we partition on loan type and loan purpose, similar to Berg et al (2016Berg et al ( , 2017 and Buca and Vermeulen (2017). We also use investment ratings as a proxy for information asymmetry.…”

“…Investment ratings have a long history in the assessment of information asymmetry and corporate risk. Studies by Odders-White and Ready (2006), Yi and Mullineaux (2006), Wittenberg-Moerman (2008), and Berg et al (2016Berg et al ( , 2017 explore different aspects of investment ratings. Overall, they suggest that it is prudent for both bank and borrower to work collaboratively to reduce information asymmetry and to facilitate loan approval.…”

Europe vs. the U.S.: A new look at the syndicated loan pricing puzzle

“…That explanation solved the puzzle, but only for listed borrowers. Berg et al (2016) underscored that loan category matters, and showed that the puzzle vanishes for syndicated credit lines, which account for 70% of their full sample.Stressing that ratings are based on accounting ratios (Campbell and Taksler, 2003), which depend on standards that vary across jurisdictions, this paper shows that using region-specific ratings solves the SL puzzle, not only over the period covered by C&N, but also for a larger sample of SLs. …”

“…That explanation solved the puzzle, but only for listed borrowers. Berg et al (2016) underscored that loan category matters, and showed that the puzzle vanishes for syndicated credit lines, which account for 70% of their full sample.…”