What do lead banks learn from leveraged loan investors?

Arbeitspapier

In leveraged loan deals, lead banks use bookbuilding to extract pricerelevant information from syndicate participants. This paper examines the content of such information. We find that pricing adjustments during bookbuilding are highly informative, not only about investors' required risk premium but also about borrower quality. A one-percentage-point increase in loan spread predicts a 0.8% higher excess return, a proxy for risk premium, over the first 3 months of secondary market trading. More importantly, it also predicts a 3% higher probability of subsequent default, implying that investors have private information about borrower quality that is unknown to the lead bank. Our findings suggest a new view of how information asymmetries affect syndicated lending.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. WP 2023-44

Classification and Topics

• Classification: Wirtschaft ; Pension Funds; Non-bank Financial Institutions; Financial Instruments; Institutional Investors ; Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies ; Corporate Finance and Governance: General
• Subject: syndicated loans ; leveraged loans ; underwriting

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Bruche, Max ; Meisenzahl, Ralf R. ; Xu, David Xiaoyu
• Event: Veröffentlichung
• (who): Federal Reserve Bank of Chicago
• (where): Chicago, IL
• (when): 2023

Further information

• DOI: doi:10.21033/wp-2023-44
• Handle: http://hdl.handle.net/10419/284085
• Last update: 10.03.2025, 11:44 AM CET