Some Evidence On The Secondary Market Trading Of Syndicated Loans

Abstract

An important recent development in U. S. capital markets is the tremendous growth in the secondary market trading of syndicated loans. This paper uses a unique trading data set for syndicated loans over the period 1997 to 2003 to empirically investigate two major issues. First, we present a statistical overview of the recent growth in the secondary market trading of syndicated loans. Second, we examine the determinants of which syndicated loans are most likely to be traded in the secondary market using binomial logistic regression models. We find that syndicated loans that are larger, have longer maturities, are underwritten by larger syndicates, and are used for debt repayment, takeovers, and leveraged buyouts are more likely to be traded. Lender reputation plays an important role as well, with loans originated by very active lenders more likely to be traded. We also find that syndicated loans made to borrowers with only senior debt ratings are more likely to be traded in the secondary market than loans made to borrowers with both a debt rating and equity that trades in a stock exchange. This result most likely reflects the growing demand of institutional investors for the higher yields of levered and highly levered syndicated loans made to riskier opaque borrowers with less available market information.