Research

Working Papers

Intermediary Frictions and the Corporate Credit Cycle: Evidence From CLOs 

Abstract:

I quantify the contribution of intermediary agency frictions to the cyclicality of lending by collateralized loan obligations (CLOs). CLOs’ cost of debt contains significant compensation for agency problems arising from CLOs’ discretion in trading. Agency problems intensify in volatile periods, raising CLOs’ cost of debt, reducing the issuance of new CLOs, and affecting real outcomes in CLO-dependent firms. To mitigate this effect, CLOs issued in volatile periods restrict their discretion, which, however, also limits valuable trading. Using a structural model, I estimate that one third of the steep fall in CLO issuance during volatile periods is due to agency frictions.

Nonbank Lending and Credit Cyclicality with Manasa Gopal, German Gutierrez, and Sebastian Hillenbrand

R&R Review of Financial Studies

Abstract:

Prior work identifies bank health as a key driver of syndicated lending fluctuations, particularly during the Global Financial Crisis. We show that the relationship between bank health and lending weakens considerably once we account for the impact of nonbanks on loan originations. Weaker banks originated more nonbank loans pre-crisis and reduced their originations more during the crisis, as nonbanks withdrew. Comparing banks and nonbanks over multiple credit cycles, we find that the cyclicality of nonbanks’ credit supply is more than three times higher. We show – empirically and theoretically – that theories of heterogeneous financial frictions can explain the evidence.

The Myth of the Lead Arranger’s Share with Kristian Blickle, Sebastian Hillenbrand, and Anthony Saunders

DealScan Guide: Data and Code 

R&R Journal of Finance

Best Paper Award Muenster Banking Workshop

Abstract:

We challenge theories that lead arrangers retain shares of syndicated loans to overcome information asymmetries. Lead arrangers frequently sell their entire loan stake – in over 50% of term and 70% of institutional loans. These sell-offs usually occur days after origination, with lead arrangers retaining no other borrower exposure in 37% of sell-off cases. Counter to theories, sold loans perform better than retained loans. Our results imply that information asymmetries could be lower than commonly assumed or mitigated by alternative mechanisms such as underwriting risk. We also provide guidance for Dealscan users on how to approximate loan ownership after origination.