Research

Working Papers

Intermediary Frictions and the Corporate Credit Cycle: Evidence From CLOs 

Abstract:

I study the role of intermediary agency frictions in 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, and reducing the issuance of new CLOs. To mitigate this effect, CLOs issued in volatile periods restrict their discretion, which, however, also limits profitable trading. Using a structural model, I estimate that agency frictions can explain about one-third of the steep fall in CLO issuance during volatile periods.

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

Forthcoming, Review of Financial Studies

Abstract:

We study the contribution of banks and nonbanks to cyclical fluctuations in the supply of syndicated loans. We find that a reduction in nonbank lending explains most of the contraction in syndicated credit and the associated employment losses during the Global Financial Crisis, while banks’ contribution is small. Looking over multiple cycles, nonbanks’ credit supply is roughly three times more cyclical than banks’, suggesting that nonbanks are the main drivers of syndicated lending cycles. A model in which government support stabilizes bank funding can explain the higher cyclicality of nonbanks.

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.