Creditor Control Rights and the Pricing of Private Loans

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Event details

Date 02.11.2022 15:0016:00  
Speaker Marc Arnold, University of St. Gallen
Location
UniL Campus, Room Extra 125
Category Conferences - Seminars
Event Language English

This paper investigates the influence of creditor control rights on the pricing of corporate loans. We construct a novel dataset, which combines hand-collected covenant violations data with individual borrower, creditor, and loan contract information. Our data allows us to distinguish between creditors that receive direct control rights after a covenant violation and creditors that do not receive control rights after a violation. By comparing the loan terms of these two creditor types, we can isolate the impact of creditor control rights on loan pricing from the impact of other factors related to a covenant violation. We find that creditors exploit control rights to overprice new loans, which is a key determinant of the loan premium puzzle.