Economic value in tranching of syndicated loans

  • Pankaj Kumar Maskara
  • Published 2015

Abstract

This paper presents a theory to explain the economic value of tranching and provides empirical evidence to support the theoretical implications. I show that riskier firms are more likely to take loans with multiple tranches. Therefore, the average credit spread on a syndicated loan with multiple tranches is higher than that on a non-tranched loan. However, after accounting for the risk characteristics of a tranched loan, I show that borrowings that are a part of tranched loans have lower credit spreads than otherwise identical non-tranched loans. I also show that the benefits of tranching accrue primarily to riskier

Cite this paper

@inproceedings{Maskara2015EconomicVI, title={Economic value in tranching of syndicated loans}, author={Pankaj Kumar Maskara}, year={2015} }