Large Customer-supplier Links and Syndicate Loan Structure

50 Pages Posted: 8 Apr 2019 Last revised: 12 Dec 2020

See all articles by Ettore Croci

Ettore Croci

Catholic University of the Sacred Heart of Milan

Marta Degl'Innocenti

University of Milan - Department of Economics, Management and Quantitative Methods (DEMM); University of Southampton

Si Zhou

Shanghai University

Date Written: December 12, 2020

Abstract

Relationships between large customers and suppliers expose lenders to additional risks. These risks may force lead agents to retain a larger share of syndicated loans, reducing loan-level diversification, and, in turn, increasing the required interest rate spread. Consistent with this view, we find that borrowers’ dependence on a few larger customers or suppliers positively affects the cost of the loans indirectly through the loan structure. Instead, we do not observe a direct cost associated with large customer-supplier links, suggesting that lead agents do not increase the interest rate spread as compensation for the additional risks of dealing with borrowers with large customer-supplier links per se. Finally, we document an inverted U-shaped relationship between the length of the large customer-supplier link and the loan share held by the lead agent.

Keywords: Diversification, Large customer-supplier link, Loan structure, Loan pricing, Syndicated loan

JEL Classification: G21, G30, L1

Suggested Citation

Croci, Ettore and Degl'Innocenti, Marta and Zhou, Si, Large Customer-supplier Links and Syndicate Loan Structure (December 12, 2020). Journal of Corporate Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3353214 or http://dx.doi.org/10.2139/ssrn.3353214

Ettore Croci

Catholic University of the Sacred Heart of Milan ( email )

Largo Gemelli, 1
Via Necchi 9
Milan, MI 20123
Italy

Marta Degl'Innocenti

University of Milan - Department of Economics, Management and Quantitative Methods (DEMM) ( email )

Via Conservatorio, 7
Milan, 20122
Italy

University of Southampton ( email )

University Rd.
Southampton SO17 1BJ, Hampshire SO17 1LP
United Kingdom

Si Zhou (Contact Author)

Shanghai University ( email )

Room 522, Building 1,
Shanghai University,
Shanghai, Shanghai 20044
China

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