Creditor Rights, Enforcement, and Debt Ownership Structure: Evidence from the Global Syndicated Loan Market

Abstract

Using a sample of 495 project finance loan tranches (worth $151 billion) to borrowers in 61 different countries, we examine the relation between legal risk and debt ownership structure. The tranches exhibit high absolute levels of debt ownership concentration: the largest single bank holds 20.3% while the top five banks collectively hold 61.2% of a typical tranche. In countries with strong creditor rights and reliable legal enforcement, lenders create smaller and more concentrated syndicates to facilitate monitoring and low cost contracting. When lenders cannot rely on legal enforcement mechanisms to protect their claims, they create larger and more diffuse syndicates as a way to deter strategic default.