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Title:Essays on credit risk of syndicated loans
Author(s):Ding, Jianglin
Director of Research:Pennacchi, George G.
Doctoral Committee Chair(s):Pennacchi, George G.
Doctoral Committee Member(s):Almeida, Heitor; Kronlund, Mathias; Pollet, Joshua M
Department / Program:Finance
Degree Granting Institution:University of Illinois at Urbana-Champaign
Subject(s):Syndicated Loans
Credit Risk
Credit Rating
Strictness Measure
Abstract:This dissertation consists of three chapters on syndicated loan risk. Chapter 1. Determinants of Syndicated Loan Ratings Theory suggests that covenants and collateral reduce credit risk for syndicated loans, resulting in higher credit ratings. Using the difference between loan ratings and issuer (firm) ratings, I examine the predictive power of covenants, collateral, and other loan characteristics on credit risk as measured by loan ratings. I find that, all else equal, collateral and a subset of covenants improve loan ratings. This positive relation varies by issuer (firm) ratings and is more prominent for non-investment-grade issuers. Meanwhile higher-rated issuers have a narrower difference between loan ratings and firm ratings. I also find that term loans are on average rated lower than credit lines of the same characteristics. Overall, the empirical evidence suggests that higher loan ratings reflect higher effective seniority through covenants and collateral. Chapter 2. CDS Spread, Credit Spread and Syndicated Loan Characteristics Credit spread is a measure of credit risk for syndicated loans. To examine the impact of major factors including collateral and covenants on syndicated loan risk, I isolate the loan-level risk in two ways. First I use as a proxy for loan-level risk the difference between loan spread and issuers' CDS spread. Second, I use credit spread directly by focusing on the firm-year level. Both methods show that collateral and a subset of covenants reduce credit risk of syndicated loans. Chapter 3. Covenant Strictness Measures Covenants are an important part of loan contracting. While there is abundant empirical research on covenant strictness, there is not yet a definitive measure of covenant strictness. Existing measures incorporate only a subset of the covenants in a contract. I use loan-level credit risk to compare and rank the effectiveness of several common covenant strictness measures. The loan-level risk is measured in two ways, first by the difference between issue ratings and issuer ratings and second by using loan credit spread with fixed effects at the firm level.
Issue Date:2016-07-08
Rights Information:Copyright 2016 Jianglin Ding
Date Available in IDEALS:2016-11-10
Date Deposited:2016-08

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