Tranching in the Syndicated Loan Market

D. Cumming, J.A. McCahery, A. Schwienbacher

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Abstract

We use data comprising over 100,000 loans from 115 countries during 1995-2009 to examine factors that affect the extent of loan tranching, and the range of tranche spreads. The data show five factors that drive them: asymmetric information, borrower risk, transaction costs, the presence of institutional investors, and the legal system. Tranching is more extensive and generates greater differences in spreads between tranches of a same loan when asymmetric information and risk are more pronounced. Economic and institutional factors driving tranching are more directly applicable to non-investment grade loans. For developing countries, the data highlight factors that affect the extent of tranching but such factors show little sensitivity to the pricing of the relative spreads.
Original languageEnglish
Place of PublicationTilburg
PublisherTilburg University
Volume2011-002
Publication statusPublished - 2011

Publication series

NameEBC Discussion Paper
Volume2011-002

Keywords

  • Loan
  • Debt finance
  • Tranche
  • Law and finance

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    Cumming, D., McCahery, J. A., & Schwienbacher, A. (2011). Tranching in the Syndicated Loan Market. (EBC Discussion Paper; Vol. 2011-002). Tilburg University.