Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/284085 
Year of Publication: 
2023
Series/Report no.: 
Working Paper No. WP 2023-44
Publisher: 
Federal Reserve Bank of Chicago, Chicago, IL
Abstract: 
In leveraged loan deals, lead banks use bookbuilding to extract pricerelevant information from syndicate participants. This paper examines the content of such information. We find that pricing adjustments during bookbuilding are highly informative, not only about investors' required risk premium but also about borrower quality. A one-percentage-point increase in loan spread predicts a 0.8% higher excess return, a proxy for risk premium, over the first 3 months of secondary market trading. More importantly, it also predicts a 3% higher probability of subsequent default, implying that investors have private information about borrower quality that is unknown to the lead bank. Our findings suggest a new view of how information asymmetries affect syndicated lending.
Subjects: 
syndicated loans
leveraged loans
underwriting
JEL: 
G23
G24
G30
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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