TY - JOUR
T1 - Large customer-supplier links and syndicate loan structure
AU - Croci, Ettore
AU - Degl'Innocenti, Marta
AU - Zhou, Si
PY - 2021
Y1 - 2021
N2 - Relationships between large customers and suppliers expose lenders to additional risks. These risks may force lead agents to retain a larger share of syndicated loans, reducing loan-level diversification, and, in turn, increasing the required interest rate spread. Consistent with this view, we find that borrowers’ dependence on a few larger customers or suppliers positively affects the cost of the loans indirectly through the loan structure. Instead, we do not observe a direct cost associated with large customer-supplier links, suggesting that lead agents do not increase the interest rate spread as compensation for the additional risks of dealing with borrowers with large customer-supplier links per se. Finally, we document an inverted U-shaped relationship between the length of the large customer-supplier link and the loan share held by the lead agent.
AB - Relationships between large customers and suppliers expose lenders to additional risks. These risks may force lead agents to retain a larger share of syndicated loans, reducing loan-level diversification, and, in turn, increasing the required interest rate spread. Consistent with this view, we find that borrowers’ dependence on a few larger customers or suppliers positively affects the cost of the loans indirectly through the loan structure. Instead, we do not observe a direct cost associated with large customer-supplier links, suggesting that lead agents do not increase the interest rate spread as compensation for the additional risks of dealing with borrowers with large customer-supplier links per se. Finally, we document an inverted U-shaped relationship between the length of the large customer-supplier link and the loan share held by the lead agent.
KW - Diversification
KW - Large customer-supplier link
KW - Loan pricing
KW - Loan structure
KW - Diversification
KW - Large customer-supplier link
KW - Loan pricing
KW - Loan structure
UR - http://hdl.handle.net/10807/166947
U2 - 10.1016/j.jcorpfin.2020.101844
DO - 10.1016/j.jcorpfin.2020.101844
M3 - Article
SN - 0929-1199
VL - 66
SP - 101844-N/A
JO - Journal of Corporate Finance
JF - Journal of Corporate Finance
ER -