How Banks Price Loans for LBOs : An Empirical Analysis of Spread Determinants

This paper examines which factors determine the pricing of loans for LBOs, using a worldwide sample of 11,111 loans closed in the 2000-2016 period. Our findings are consistent with the hypothesis that loans for LBOs are priced differently by common factors than other syndicated loans. We show that loans extended to borrowers in market- versus bank-based financial systems are differently priced and that loan spreads are explained not only by contractual and macroeconomic factors, but also by proxies for bank syndicate structure, tranching, and acquired firms' characteristics. We find that loans extended to borrowers in market-based financial systems have higher spreads than those in bank-based financial systems, but this difference disappears when controlling for targeting firms' characteristics. Finally, a robust convex relationship between spread and maturity is found, suggesting higher market competition by banks and investors for standard, medium-term maturities