Ownership concentration and performance of deteriorating syndicated loans

Arbeitspapier

Regulation and capital constraints may force banks and collateralized loan obligations (CLOs) to sell deteriorating loans, potentially hampering renegotiation and amplifying the initial negative shock to the borrower. We show that banks and CLOs sell downgraded loans to mutual funds and hedge funds. The reallocation of loan shares favors the syndicate's concentration, increasing lenders' incentives to renegotiate. However, syndicates remain less concentrated when potential buyers experience financial constraints and subsequently loans are less likely to be amended and more likely to be downgraded even further. Our findings indicate that existing regulations may amplify shocks to credit quality during periods of generalized distress in the financial system.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. WP 2021-10

Classification and Topics

• Classification: Wirtschaft ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages
• Subject: Debtor Concentration ; Credit Quality ; Leveraged Lending

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Giannetti, Mariassunta ; Meisenzahl, Ralf R.
• Event: Veröffentlichung
• (who): Federal Reserve Bank of Chicago
• (where): Chicago, IL
• (when): 2021

Further information

• DOI: doi:10.21033/wp-2021-10
• Handle: http://hdl.handle.net/10419/251004
• Last update: 10.03.2025, 11:43 AM CET