Source: S& P Capital IQ's Leveraged Commentary and Data (LCD).4 It stems from the need to underwrite loan syndications, and uncertainty about how much of the loan can actually be placed with institutional investors.įigure 2 Institutional investor share in syndicated term loans This is the risk associated with marketing the loans during the syndication process. Sufi 2007), in a recent article we argue that while the sharp decrease in ultimate retention of syndicated loans has reduced the arranging banks’ exposure to traditional credit risk, the shift in the business model generates what we call pipeline risk (Bruche et al. While a large literature studies the consequences of loan syndication on the incentives to monitor borrowers (e.g. The shift in the syndicated loan business model has also affected the nature of the associated risks that arrangers are now exposed to. Currently the arranging banks retain, on average, only about 5% of a term loan. One consequence of these changes in the syndicated loan market is that the arranging bank nowadays aims to distribute as much of the loan as possible to these institutional investors, and keep very little or nothing on their banks. By the end of 2014, the institutional investors’ share in the syndicated term loan market exceeded 70% (see Figure 2).įigure 1 Source of financing of non-financial firms worldwide With the rise of the originate-to-distribute-to-nonbanks model and the secondary market for syndicated loans, institutional investors such as mutual funds and collateralised loan obligations started to provide additional funding for the syndicated term loan market (Bord and Santos 2012).

In the early 1990s, a bank that arranged a syndicated loan partnered with other banks to form the term loan syndicate, and the arranging banks kept a substantial share of the loan (20–30%) on its books. Much of the expansion in syndicated lending has been driven by fundamental changes in the syndicated term loan market. In 2016, non-financial corporations borrowed $3.4 trillion worldwide from the syndicated loan market, making this source of funding significantly larger than the issuance of bonds and equity (see Figure 1). (which could mean more jobs).Syndicated loan issuance – in which banks partner with other financial institutions to originate large loans – has grown dramatically over the last 25 years.

If Westinghouse does land the deal, though, said former Energy Secretary Spencer Abraham last week, it could make their new nuke plant model easier to build in the U.S. workers to manufacture parts for the Chinese plants, critics point out that those jobs would cost the government about $1 million a pop. companies?” Though the deal is expected to employ up to 5,000 U.S. tax dollars they should be supporting U.S. Export-Import Bank, which would provide the loans and loan guarantees, “is funded by U.S.

Dennis Kucinich (D-Ohio) put it, the U.S. The objections are not about the nuclear waste that would result, or reactors’ vulnerability to terrorist attacks and catastrophic accidents. to build four massive nuclear reactors in China is encountering a flurry of objections. government to British-owned Westinghouse Electric Corp. plans to subsidize four new Chinese nuke plantsĪ nearly $5 billion proposed loan package from the U.S.

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