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Overcoming the Information Gap in Syndicated Loans

While syndicated loans – loans offered by more than one bank – offer lenders notable benefits, such as opportunities to diversify their portfolios, they can also be a source of conflict. Lead arrangers of syndicated loans often have more information about the borrower than they share with their partner lenders, which causes tension among the participants.

To help alleviate such complications, Wei Wang and his coauthors investigated the value of information provided by equity analysts in the syndicated loan market.

Research found that analysts provided lenders with information that filled information gaps, contributing to reduced interest spreads and larger portions of loans funded. Lenders’ access to this information ultimately improved financing outcomes for borrowers.

Wang’s research can help borrowers and investors alike better understand how analyst coverage can affect financing outcomes and borrowing costs of syndicated loans.