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Report
Bank loan sales: a new look at the motivations for secondary market activity
Bank lending traditionally involves the extension of credit that is held by the originating bank until maturity. Loan sales allow banks to deviate from this pattern by transferring loans in part or in their entirety from their own books to those of another institution. This paper uses a new methodology to test the validity of two hypotheses regarding banks' motivations for selling and buying loans: (1) the comparative advantage hypothesis, that banks with a comparative advantage in originating loans sell and those with a comparative advantage in funding loans buy, and (2) the diversification ...
Working Paper
EBITDA Add-backs in Debt Contracting: A Step Too Far?
Financial covenants in syndicated loan agreements often rely on definitions of EBITDA that deviate from the GAAP definition. We document the increased usage of non-GAAP addbacks toEBITDA in recent times. Using the 2013 Interagency Guidance on Leveraged Lending, which we argue led to an exogenous increase in non-GAAP EBITDA addbacks, we show that these addbacksincrease the likelihood of loan delinquency and default, and also increase the likelihood of the borrower experiencing a ratings downgrade. Greater use of non-GAAP EBITDA addbacks also makes it more likely that lead arrangers lower their ...
Journal Article
Will the securitization revolution spread?
Conference Paper
The loan asset sales market, what lies ahead?
Working Paper
Loan sales: Pacific Rim trade in nontradable assets
An examination of the role of foreign banks in the loan sales market, finding that the motives for loan sales and purchases differ between U.S. and foreign-owned banks and between foreign banks of different regions, which is consistent with foreign banks' using the market for diversification.
Working Paper
Managing the risk of loans with basis risk: sell, hedge, or do nothing?
Individual loans contain a bundle of risks including credit risk and interest rate risk. This paper focuses on the general issue of banks? management of these various risks in a model with costly loan monitoring and convex taxes. The results suggest that if the hedge is not subject to basis risk, then hedging dominates a strategy of ?do nothing.? Whether hedging dominates loan sales depends on whether it induces reduced monitoring, the net benefit of monitoring, and the reduced tax burden of eliminating all risk via selling. If the hedge is subject to basis risk, then a ?do nothing? strategy ...
Conference Paper
The paradox of loan sales
Journal Article
Off-balance sheet banking