The Agency Structure of Loan Syndicates

Abstract

Leaders of loan syndicates often delegate some administrative tasks to banks known as co-agents. One reason is that co-agents are specialized banks that help split the costs of managing the syndicate. Another reason is that co-agents monitor the leader on behalf of syndicate members to mitigate informational asymmetry problems. Large sample tests on the Dealscan database provide support for both arguments. Evidence of repeated contracting between the same banks explains the moderate magnitude of monitoring effects. Copyright 2007, The Eastern Finance Association.

Syndication, interconnectedness, and systemic risk

“…16 We collect the following: (i) loan terms and conditions such as loan amount, maturity, and pricing, (ii) information on the borrower such as its sales, whether it is a private or public …rm, and whether it has an S&P or Moody's bond rating, and (iii) information on the lenders and their roles in the syndicate as well as loans shares at origination.…”

“…A lead arranger can pro…t from other lenders' degree of specialization and delegate some of the syndicate functions to them [e.g., François and Missonier-Piera (2007)] such that the cost of, for example, screening and monitoring the borrower can be reduced. On the downside, however, this strategy can also bring the corporate borrower and competing lenders closer together, eventually at the cost of future lending business.…”

Competition or Collaboration? The Reciprocity Effect in Loan Syndication

“…15 However, when the lead arranger is given a su¢ ciently high participation share on an in…nite horizon that is conditional on the lead arranger exerting constant e¤ort to monitor the borrower, the moral hazard problem evaporates. 16,17 …”

Banking environment and loan syndicate structure: a cross-country analysis

“…Having a larger number of arrangers generally leads to better handling of agency problems in terms of monitoring the borrower, as several delegated monitors are present, reducing adverse selection problems linked to private information since such information is now spread among several arrangers. In addition, it is likely that some of the arrangers will act as specialized agents during the syndication, thus resulting in the process being handled better, with increased cost efficiency and reduced informational asymmetry (Franc¸ois and Missionier-Piera, 2007). However, the presence of numerous arrangers can also exacerbate the freeriding problem regarding borrower monitoring and thus leading to moral hazard.…”