Syndicated Loan Lender Disqualifications

We examine lender disqualification provisions in syndicated loan contracts. These provisions prohibit lenders from assigning loans to entities on a disqualified lender list provided by borrowers during loan origination. We provide evidence that loan contracts are more likely to include lender disqualification provisions for: (1) borrowers that have greater investments and assets that are more informationally sensitive; (2) borrowers that operate in more concentrated industries; and (3) loans that include non-bank institutional lenders. These findings are consistent with lender disqualification provision inclusion in loan contracts to reduce proprietary costs and bargaining frictions that result from non-bank institutional lender participation in the primary and secondary loan market. We further show that loans with lender disqualification provisions include higher interest to compensate lenders and are associated with borrower favorable amendments