Why borrowers pay premiums to larger lenders : empirical evidence from sovereign syndicated loans

  • All other terms being equal (e.g. seniority), syndicated loan contracts provide larger lending compensations (in percentage points) to institutions funding larger amounts. This paper explores empirically the motivation for such a price design on a sample of sovereign syndicated loans in the period 1990-1997. I find strong evidence that a larger premium is associated with higher renegotiation probability and information asymmetries. It hardly has any impact on the number of lenders though. This is consistent with the hypothesis that larger lenders act as main lenders, namely help reduce information asymmetries and provide services in situations of liquidity shortage. This constitutes new evidence of the existence of compensations for such unique services. Moreover, larger payment discrepancies are also associated with larger syndicated loan amounts. This provides further new evidence that larger borrowers bear additional borrowing costs.

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Author:Issam Hallak
Parent Title (German):Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2002,02
Series (Serial Number):CFS working paper series (2002, 02 r)
Document Type:Working Paper
Year of Completion:2003
Year of first Publication:2003
Publishing Institution:Universit├Ątsbibliothek Johann Christian Senckenberg
Release Date:2005/06/13
Tag:Number of Lenders; Relationship Lending; Sovereign Debt; Syndicated Loans
Issue:Revised Version: October, 2003
Revised Version: October, 2003. First version (June 2002) with the title: "Price Discrimination on Syndicated Loans and the Number of Lenders: Empirical Evidence from the Sovereign Debt Syndication"
Institutes:Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht