Journal of Banking & Finance Vol. 34 No. 5 2010
Economic value in tranching of syndicated loans
open access
Abstract
This paper presents a theory to explain the economic value of tranching and provides empirical evidence to support the theoretical implications. I show that riskier firms are more likely to take loans with multiple tranches. Therefore, the average credit spread on a syndicated loan with multiple tranches is higher than that on a non-tranched loan. However, after accounting for the risk characteristics of a tranched loan, I show that borrowings that are a part of tranched loans have lower credit spreads than otherwise identical non-tranched loans. I also show that the benefits of tranching accrue primarily to riskier borrowers.
- DOI
- 10.1016/j.jbankfin.2009.10.007
- Volume
- 34
- Issue
- 5
- Pages
- 946-955
- Language
- en
- Sources
- openalex crossref bibtex:phds-export.bib