Business Aggression, Institutional Loans, and Credit Crisis: Evidence from Lending Practices in Leveraged Buyouts

This paper investigates the lending practices related to leverage buyouts (LBOs) market between high and low write-down institutions. The write-downs, which are a proxy for business aggression of institutions, are mainly related to credit crisis from the beginning of 2007 to August 10, 2008. We find...

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Main Authors: CAO, Xiaping Jerry, Song, Wei-Ling, MASON, JOE
Format: text
Language:English
Published: Institutional Knowledge at Singapore Management University 2009
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Online Access:https://ink.library.smu.edu.sg/lkcsb_research/1815
https://ink.library.smu.edu.sg/context/lkcsb_research/article/2814/viewcontent/LendingandLBOLoans.pdf
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spelling sg-smu-ink.lkcsb_research-28142018-07-09T07:28:06Z Business Aggression, Institutional Loans, and Credit Crisis: Evidence from Lending Practices in Leveraged Buyouts CAO, Xiaping Jerry Song, Wei-Ling MASON, JOE This paper investigates the lending practices related to leverage buyouts (LBOs) market between high and low write-down institutions. The write-downs, which are a proxy for business aggression of institutions, are mainly related to credit crisis from the beginning of 2007 to August 10, 2008. We find that high (low) write-down institutions increase (decrease) loan market share dramatically during the period of 2001-2006. The increase is mainly driven by the segment of loans sold to institutional investors, such as collateralized loan obligations vehicle, hedge fund, and insurance companies. Institutional loans originated by high write-down institutions carry significantly fewer covenants and higher interest spread than those by low write-down institutions during 2001-2006. However, there are no such differences during 1995-2000. The aggressive lending practice by high write-down institutions to lower quality borrowers during 2001-2006 appeared to be mitigated by reputable private equity (PE) investors. High write-down institutions arranged loans with more covenants and lower interest spread for borrowers with investments from more reputable private equity investors. 2009-01-01T08:00:00Z text application/pdf https://ink.library.smu.edu.sg/lkcsb_research/1815 https://ink.library.smu.edu.sg/context/lkcsb_research/article/2814/viewcontent/LendingandLBOLoans.pdf http://creativecommons.org/licenses/by-nc-nd/4.0/ Research Collection Lee Kong Chian School Of Business eng Institutional Knowledge at Singapore Management University Credit crisis Leveraged buyouts bank loans collateralized loan obligations private equity Finance and Financial Management Portfolio and Security Analysis
institution Singapore Management University
building SMU Libraries
continent Asia
country Singapore
Singapore
content_provider SMU Libraries
collection InK@SMU
language English
topic Credit crisis
Leveraged buyouts
bank loans
collateralized loan obligations
private equity
Finance and Financial Management
Portfolio and Security Analysis
spellingShingle Credit crisis
Leveraged buyouts
bank loans
collateralized loan obligations
private equity
Finance and Financial Management
Portfolio and Security Analysis
CAO, Xiaping Jerry
Song, Wei-Ling
MASON, JOE
Business Aggression, Institutional Loans, and Credit Crisis: Evidence from Lending Practices in Leveraged Buyouts
description This paper investigates the lending practices related to leverage buyouts (LBOs) market between high and low write-down institutions. The write-downs, which are a proxy for business aggression of institutions, are mainly related to credit crisis from the beginning of 2007 to August 10, 2008. We find that high (low) write-down institutions increase (decrease) loan market share dramatically during the period of 2001-2006. The increase is mainly driven by the segment of loans sold to institutional investors, such as collateralized loan obligations vehicle, hedge fund, and insurance companies. Institutional loans originated by high write-down institutions carry significantly fewer covenants and higher interest spread than those by low write-down institutions during 2001-2006. However, there are no such differences during 1995-2000. The aggressive lending practice by high write-down institutions to lower quality borrowers during 2001-2006 appeared to be mitigated by reputable private equity (PE) investors. High write-down institutions arranged loans with more covenants and lower interest spread for borrowers with investments from more reputable private equity investors.
format text
author CAO, Xiaping Jerry
Song, Wei-Ling
MASON, JOE
author_facet CAO, Xiaping Jerry
Song, Wei-Ling
MASON, JOE
author_sort CAO, Xiaping Jerry
title Business Aggression, Institutional Loans, and Credit Crisis: Evidence from Lending Practices in Leveraged Buyouts
title_short Business Aggression, Institutional Loans, and Credit Crisis: Evidence from Lending Practices in Leveraged Buyouts
title_full Business Aggression, Institutional Loans, and Credit Crisis: Evidence from Lending Practices in Leveraged Buyouts
title_fullStr Business Aggression, Institutional Loans, and Credit Crisis: Evidence from Lending Practices in Leveraged Buyouts
title_full_unstemmed Business Aggression, Institutional Loans, and Credit Crisis: Evidence from Lending Practices in Leveraged Buyouts
title_sort business aggression, institutional loans, and credit crisis: evidence from lending practices in leveraged buyouts
publisher Institutional Knowledge at Singapore Management University
publishDate 2009
url https://ink.library.smu.edu.sg/lkcsb_research/1815
https://ink.library.smu.edu.sg/context/lkcsb_research/article/2814/viewcontent/LendingandLBOLoans.pdf
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