Staff Reports
The Myth of the Lead Arranger’s Share
Number 922
May 2020

JEL classification: G21, G24, G30

Authors: Kristian S. Blickle, Quirin Fleckenstein, Sebastian Hillenbrand, and Anthony Saunders

We make use of Shared National Credit Program (SNC) data to examine syndicated loans in which the lead arranger retains no stake. We find that the lead arranger sells its entire loan share for 27 percent of term loans and 48 percent of Term B loans, typically shortly after syndication. In contrast to existing asymmetric information theories on the role of the lead share, we find that loans that are sold are less likely to become non-performing in the future. This result is robust to several different measures of loan performance and is reflected in subsequent secondary market prices. We explore syndicated loan underwriting risk as an alternative theory that may help explain this result.

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AUTHOR DISCLOSURE STATEMENT(S)
Kristian Blickle
The author declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York and SNC data review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.

Quirin Fleckenstein
The author declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York and SNC data review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.

Sebastian Hillenbrand
The author declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York and SNC data review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.

Anthony Saunders
The author declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York and SNC data review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.