Three essays on corporate loans

Kurzfassung/Abstract

1. Dual holdings and shareholder-creditor agency conflicts: Evidence from the syndicated loan market

We examine implications from the expansion of private equity (PE) firms into the CLO (i.e. leveraged lending) business. Due to similarities in the investment universes of CLO managers and PE firms, asset management groups running both of them frequently hold debt and equity claims of the same company. Our results indicate lower credit costs for these companies through mitigation of shareholder-creditor agency conflicts. The lower funding costs imply increased equity returns for the sponsoring PE firms. In addition, our findings suggest that PE-affiliated CLO managers benefit from informed trading in the secondary leveraged loan market.

2. Affiliated investment bias in collateralized loan obligations

Collateralized loan obligation (CLO) managers are often part of asset management groups that also operate private equity (PE) firms. This paper examines whether these CLO managers exhibit a bias towards loans to companies sponsored by their affiliated PE firms. We find that CLO managers overweight these affiliated investments in their portfolios. Purchase level analyses reveal that the positive relationship between affiliation and investment is highly concentrated in primary market trades. Evidence suggests that the affiliated investment bias is partially explained by group-level incentives to support the funding of the PE firm’s portfolio companies. Moreover, preferential allocations by loan arrangers contribute to the observed bias.

3. Revisions to the Basel securitization framework and their impact on CLOs

In December 2017, the European regulation on capital requirements for securitizations was comprehensively revised. This paper examines the impact of these revisions on collateralized loan obligations (CLOs). A comparison of the results of risk weight calculations for a typical CLO under the previous and revised frameworks shows an overall increase in capital requirements. The increase is particularly pronounced under the new standardized approach (SEC-SA). However, difference-in-difference analyses of credit spreads indicate no effect of the higher capital requirements on the interest rates of CLO tranches. These results suggest that the cost of regulatory capital requirements for banks is limited