Sindicatio Clo

Financial Innovations and Corporate Policies: Loan Syndication and
Securitization
Donghang Zhang and Yafei Zhang*
February 2022
Abstract
Syndicated loans integrate bank monitoring with risk sharing similar to corporate bonds.
Consistent with this argument, we find that firms use more loans and fewer bonds, and increase
capital expenditures, after initial access to the syndicated loan market. The growth of collateralized
loan obligations (CLOs) further strengthens the development of the syndicated loan market by
facilitating information production and mitigating market segmentation. Loans with greater CLO
ownership have lower interest rate spreads. This effect is stronger when CLO triple-A tranches are
larger and when borrowers are low-rated and more opaque. CLO ownership is also positively
associated with borrowers’ post-loan investments.
Keywords: Syndicated loan, Securitization, Collateralized loan obligation (CLO), Leverage, Debt
structure, Capital expenditure, Financial innovation
JEL classification: G12, G14, G21, G23, G32
*
Donghang Zhang (zhang@moore.sc.edu): Moore School of Business, University of South Carolina, 1014 Greene
Street, Columbia, SC 29208. Yafei Zhang (yafei.zhang@manchester.ac.uk): Alliance Manchester Business School,
Booth Street West, Manchester, M15 6PB, UK. We are grateful to Sam Robinson for help with the CLO data. We
thank Saharnaz Babaei Balderlou, Allen Berger, Mitchell Berlin, Sarah Ji, Gregory Nini, Anothony Saunders,
Jonathan Tregde, and seminar participants at the University of South Carolina for helpful comments. We acknowledge
support from the Moore Research Grant Program at the Moore School of Business at the University of South Carolina.
Electronic copy available at: https://ssrn.com/abstract=4042143

1. Introduction
Financial innovations improve economic performance by creating products and securities
to improve risk sharing, lower transaction costs, and reduce agency costs that arise from
information asymmetry and other market frictions (Merton (1992) and Bernanke (2007)).
Syndicated loans are among the most important financing sources for U.S. firms. During our
sample period of 2005 to 2018, the proceeds of syndicated loan issuances totalled on average $1.99
trillion per year. The amount of loan issuances is more than 1.5 times that of corporate bonds, and
about ten times the combined proceeds of equity offerings, including initial public offerings (IPOs)
and seasoned equity offerings (SEOs). Furthermore, the growth of the syndicated loan market has
clearly dominated the other capital markets, especially after the 2007-2009 financial crisis.
Meanwhile, collateralized loan obligations (CLOs) have also experienced significant growth
during this period. By 2018, CLOs had $617 billion in assets under management (Guse, Park,
Saravay, and Yook (2019)). According to the Loan Syndication and Trading Association (LSTA),
CLOs held more than 50% of institutional term loans outstanding in 2018 and 2019.
In this paper, we focus on two innovation aspects of the syndicated loan market. We argue
that syndicated loans are a corporate debt structure innovation that combines the monitoring
feature of bilateral bank loans with the risk sharing of corporate bonds. Collateralized loan
obligations (CLOs) further strengthen this debt structure innovation. As a securitization vehicle
for syndicated loans, a CLO allows its manager and equity tranche investors to retain the gains
from the improved performance of its loan portfolio. This structure achieves a better alignment of
the benefits and costs of information production on syndicated loans. As a result, CLOs reduce
information asymmetry between borrowers and loan investors, improving the secondary market
liquidity of loans and reducing the monitoring costs for borrowers.
Moreover, CLOs issue triple-A-rated bonds and invest in speculative-grade loans. This
rating transformation connects speculative borrowers with triple-A bond investors, facilitating risk
sharing. We examine the economic consequences of the development of the syndicated loan
market and the prevalent loan securitization on corporate borrowers. We show that these debt

structure innovations have real impacts on firms’ borrowing costs, debt financing choices, and
investments.
A bilateral loan does not have the benefit of risk sharing, because the loan contract is
between the borrower and a bank, and cannot be easily traded. Meanwhile, a corporate bond does
not provide the benefit of bank monitoring that comes with a bilateral loan contract because of
free-riding problems among bond investors. A syndicated loan, however, can internalize these
favorable externalities.
In a typical loan syndication, the lead bank takes on the primary information collection and
monitoring responsibilities (Sufi (2007)). A syndicated loan package often includes a credit line
facility, a pro rata loan facility (Term Loan A, or TLA), and institutional term loan facilities (Term
Loan B, or TLB, or other leveraged loans with higher letters (e.g., TLC)). Credit line facilities and
TLAs are held by banks. The presence of bank lending, especially a credit line in a syndicated loan,
incentivizes the lead bank to monitor the borrowing firm and to produce and share information on
the borrower during the life of the loan (e.g., Rajan and Winton (1995); Sufi (2009); Acharya,
Almeida, Ippolito, and Perez (2014); Berlin, Nini, and Yu (2020); and Berger, Zhang, and Zhao
(2020)). Institutional term loans have a cash flow pattern similar to corporate bonds and have very
light amortization. The institutional investors for these loans, including CLOs, loan mutual funds,
and hedge funds, provide capital to the borrower and share the investment risks. These investors
actively trade institutional term loans on the secondary market, which improves loan liquidity and
further helps risk sharing (Gande and Saunders (2012)).
A syndicated loan also eliminates unfavorable externalities such as agency conflicts
between loan lenders and bond investors. Therefore, after a firm gains access to the syndicated
loan market, the overall costs of debt become cheaper, and the availability of credit increases. We
thus posit that 1) leverage will increase for a borrower once it gains access to the syndicated loan
market; 2) a borrower will use more syndicated loans in place of bilateral loans and corporate
bonds; and 3) with more available capital at a lower cost, a borrowing firm will increase its
investments.
To shed further light on the potential efficiency gains in the syndicated loan market, we

take advantage of the fact that most of the underlying collaterals in a CLO’s portfolio are
syndicated loans, and CLOs hold more than half of the institutional term loans during recent years.
This allows us to examine how CLO ownership in a loan affects its interest rate spread. We argue
that CLOs and the associated loan securitization help mitigate loan market frictions due to
segmentation and information asymmetry, and improve loan market efficiency.
Market segmentation can prevent a firm from seeking outside financing from certain types
of investors, which may increase a firm’s financing costs. For example, investors in a country that
is segmented from others require a risk premium to bear the specific risk of the economic activities
in that country (Stulz (1999)). In the U.S., insurance companies are regulated based on their risk
exposure to bonds in different rating categories and are restricted from holding non-investment-
grade assets (Kisgen (2006) and Lemmon, Liu, Mao, and Nini (2014)). There is evidence that
syndicated loan markets are segmented, and that it results in higher borrowing costs (e.g., Carey
and Nini (2007) and Ivashina and Sun (2011)).
The majority of bonds issued by CLOs are AAA-rated, while most underlying collateral
loans are highly speculative. This rating transformation connects speculative or non-rated
borrowers with investors that prefer investment-grade securities due to capital regulations (e.g.,
banks and insurance companies).1 Thus, the CLO structure broadens the investor base for risky
borrowers, and reduces market frictions that result from segmentation.
Speculative-grade loans are often associated with severe information asymmetry problems
because of their high downside risk. The tranching in the loan securitization process reduces
investors’ adverse selection concerns, because triple-A tranches are shielded from the initial losses
of the underlying speculative loans. Holders of lower tranches, especially the equity tranches, are
hence incentivized to engage in more information production (DeMarzo (2005)). Sophisticated
credit investors and CLO managers work with banks to actively monitor the performance of loans
in their portfolios. Such information production by credit managers can alleviate information
1
Another possible motivation for securitization is that, to attract non-insured deposits from institutional investors,
banks need AAA-rated securities (e.g., asset-backed securities) as collaterals in repurchase agreements (Repos)
(Gorton and Metrick (2012)).

asymmetries among borrowers, banks, and loan investors.
Taken together, we argue that CLO ownership in a loan reflects efficiency gains from loan
securitization. These gains stem from reduced information asymmetries and market segmentation.
We hypothesize that syndicated loans with greater CLO ownership are associated with lower
interest rate spreads. Because of lower borrowing costs, greater CLO ownership will also have a
real effect on the borrowing firm – it will be positively related to corporate investments.
To test our hypotheses, we construct two related but separate samples. At the extensive
margin, we compare firms’ corporate policy changes after initial syndicated loan offerings (ISLOs)
with those after seasoned syndicated loan offerings (SSLOs) in a difference-in-differences (DiD)
setting. We define ISLO as the first syndicated loan offering of a firm in the LPC DealScan
database. We refer to all follow-on offerings as SSLOs. To distinguish between the effects from
ISLOs and those from SSLOs, we retain seasoned loan offerings for at least five years after the
borrowing firm’s first syndicated loan. We match each ISLO with a maximum number of the three
closest SSLOs on firm characteristics, and compare how each type affects firms’ financing and
investments.
We find that borrowers increase their leverage and use of bank loans and reduce their use
of bonds more after ISLOs than after SSLOs. On average, a firm’s leverage increases 6% more
after its ISLO than it does after an SSLO. Moreover, the percentage of bank loans over total debts
increases 11% more,2 and the percentage of corporate bonds over total debts decreases 7% more.
Borrowers also increase capital expenditure, R&D, and acquisition expenditure more after ISLOs
than SSLOs. These patterns appear to persist for five years after loan issuance, suggesting that
gaining access to the syndicated loan market has long-lasting effects on a firm’s capital structure
and debt financing choices.
The timing of a firm’s ISLO could be endogenous, and an ISLO firm may have better and
larger investment and financing opportunities than an SSLO firm. We use the Federal Reserve’s
2
Because both syndicated loans and bilateral loans are categorized as bank loans in a firm’s debt structure, we cannot
empirically distinguish between them. Therefore, the DiD effect on bank/term loan amount is a net effect of the
increase in syndicated loans and the decrease in bilateral bank loans.

Leveraged Lending Guidance (LLG) issued in June 2013 as an exogenous shock to loan issuances
to help mitigate these endogeneity concerns. The LLG encourages banks to scrutinize their
syndicated lending more closely, and increases the bar for entering the syndicated loan market.
Our results show that the LLG generally achieves these desired effects. For example, the use of
bank loans is relatively lower for the overall sample after the LLG. For the post-LLG period, firms
also invest less aggressively after loan issuance. But the incremental impacts of ISLO on a firm’s
leverage, the mix of bonds and bank loans, and investments are larger after the LLG. The
differences of investment opportunities or financing choices for an ISLO firm, compared to an
SSLO firm, should not be related to the LLG. The differential impacts of an ISLO due to the LLG
suggest that the link between a firm’s ISLO and its corporate policies is likely to be causal.
At the intensive margin, we examine how the involvement of CLOs affects a firm’s
borrowing costs. We construct a CLO ownership sample by merging loan information in DealScan
with CLO loan ownership data in Creditflux’s CLO-i database. Creditflux is a leading information
source for credit funds and CLOs. Its CLO-i platform provides comprehensive coverage on CLO
investments in syndicated loans. We find that syndicated loans with higher CLO ownership have
lower interest rate spreads. A 1-standard deviation increase in CLO ownership (18%) is associated
with an 11-basis point (bp) decrease in loan spreads (or $600,000 in savings on interest payments
per year for the average loan in our sample).
Because of the granularity of our CLO data, we can refine the CLO ownership measure by
examining what portion of a loan is ultimately held by triple-A tranche investors. Because of
capital regulations, investors such as insurance companies and banks tend to be more attracted to
triple-A bonds. The triple-A ownership through CLOs captures the incremental demand on a loan
from otherwise segmented investors without loan securitization.
We find that loans with more triple-A investor involvement are associated with lower
interest rate spreads. The point estimates of the coefficients on triple-A ownership are greater than
those on overall CLO ownership. Economically, an 18% increase in triple-A ownership is
associated with a 19-bp decrease in loan spreads, which is 70% more than the impact of overall
CLO ownership on loan spreads.

We also find that the impact of CLO ownership on loan spreads is stronger for borrowers
with low or no ratings. This suggests that the improved information production and risk sharing
through loan securitization is more important for riskier firms. The impact is also more pronounced
in more opaque borrowers, again supporting our conjecture that CLOs alleviate information
asymmetry problems for borrowers. We find that borrowers with higher CLO ownership increase
their post-loan capital expenditure more than those with lower CLO ownerships.
To address the potential endogeneity concerns with regard to CLO ownership, we use CLO
interest diversion (ID) test results as our instrumental variables (IVs) for CLO ownership and
conduct two-stage least squares (2SLS) regression analysis.3 ID tests are used as early warnings
of the collateral values of a CLO’s loan portfolio. They require that a CLO’s loan portfolio value
remain above a predetermined threshold at each predetermined measurement date. If a CLO fails
an ID test, it is required to suspend the distribution of interest income to equity investors from its
loan portfolio, and to use the fund to purchase new loans. Note that ID test failures are likely to be
relevant and exogenous: They result in new loan demand, but it is unlikely to be related to the
pricing of a particular loan, especially when the ID tests are used as early warnings for likely
idiosyncratic loan value declines.
We construct two IVs: a dummy variable to indicate whether any CLO investor in a loan
has failed an ID test in the past three months, and a continuous variable to measure the percentage
of CLO investors that have failed such tests. The first-stage regression results suggest that these
two IVs are significantly and positively related to CLO ownership. The second-stage results
suggest that predicted CLO ownership continues to exhibit a negative and statistically significant
impact on loan spreads.
Securitization and financial innovations have been an integral part of capital market
3
CLO ownership could be endogenous due to reverse causality or omitted variables concerns. Reverse causality could
arise if CLOs were attracted to a loan due to its lower spread. Note that we do not use dollar demand from CLOs to
capture CLO ownership. Instead, we scale the dollar value of a loan owned by CLOs by the total amount of the loan.
A cheaper loan, if it exists, would attract both CLOs and other loan investors, and thus would not necessarily have
greater CLO ownership. Our paper is the first to link CLO ownership to loan spreads. A more likely concern is that
relevant variables may be omitted because of lack of research. When we regress loan spreads on CLO ownership, we
do consider the variables identified in the literature that affect loan spreads.

development. This paper contributes to the literature on securitization and financial innovation by
showing that syndicated loans are a corporate debt structure innovation that has a significant
impact on the real economy. To the best of our knowledge, this paper is also the first to provide
direct, comprehensive evidence on the impact of CLOs on both borrowing costs and corporate
investments. Nadauld and Weisbach (2012) show that loans have lower interest rate spreads if any
of the lead arrangers of the loans are among the top-ten CLO underwriters. They argue that this
evidence captures the impact of loan securitization on loan spreads. This paper furthers our
understanding of the importance of loan securitization in leveraged lending in several significant
ways. First, only 331 (7%) out of 4,536 loans in Nadauld and Weisbach (2012) are identified as
being securitized. Our sample includes 6,135 securitized loans reported by CLOs. The nearly
twenty times increase is due to market developments and the increasing importance of loan
securitization and the improved measure of securitization. The large sample of securitized loans
in this paper provides a more comprehensive picture of loan securitization.
The evidence in Nadauld and Weisback (2012) is from the period of 2002 to September
2007. The 2007-2009 financial crisis and the subsequent regulations dramatically changed the
investor composition and portfolio assets in the CLO market. Highly leveraged short-term
investors such as credit hedge funds were replaced by long-term investors such as banks, asset
managers, and insurance companies. Junk bonds and structured products that constituted a large
portion of CLOs’ portfolio assets before the crisis were substituted for by senior secured
syndicated loans. The extant studies on securitization and corporate lending all focus on the pre-
crisis periods (e.g., Ivashina and Sun (2011), Kara, Marquelz-Ibanez, and Ongena (2011), and
Nadauld and Weisbach (2012)). The new, post-crisis evidence in this paper sheds light on how
borrowing firms fared under these fundamental changes in the CLO and syndicated loan market.
Second, Nadauld and Weisbach (2012) measure loan securitization indirectly using a
binary variable indicating whether the lead bank of the loan is among top-ten CLO underwriters.
We are able to create a CLO ownership measure for each securitized loan and explicitly quantify
the impact of CLO ownership on loan spreads and corporate investments. Third, new to the
literature, we directly measure the incremental demand on a loan through triple-A tranching. The

credit quality transformation from junk loans to triple-A securities leads to an efficiency gain in
the securitization process. Our paper is the first to quantify this efficiency gain from the tranching
exercise. Fourth, loan securitization and loan demand are potentially endogenous. We establish
causality using CLOs’ ID test results as an instrumental variable to CLO ownership.
This paper also sheds light on the importance of securitization and CLOs for the
development of the syndicated loan market. An extensive literature has studied how market
segmentation affects expected stock returns or bond yields (e.g., Miller and Puthenpurackal (2002)
and Gozzi, Levine, Martinez Peria, and Schmukler (2015)). However, the literature on the impact
of market segmentation on the loan market is limited. Carey and Nini (2007) document a 30-bp
difference in loan spreads for 1992-2002 between the U.S. and European markets that cannot be
explained by loan characteristics. They refer to this as a pricing puzzle. Ivashina and Sun (2011)
suggest that institutional demand matters for syndicated loan pricing. Lemmon, Liu, Mao, and Nini
(2014) document that non-financial firms use securitization to build up their credit ratings until
they can issue commercial papers. We show that firms with speculative-grade ratings can benefit
from securitization to access triple-A investors without improving their credit ratings. This
accessibility to otherwise segmented markets reduces the borrowing costs for risky borrowers. We
provide direct answers to questions raised by Gorton and Metrick (2012) and Cordell, Roberts,
and Schwert (2022) with respect to the efficiency gains resulted from the development of CLOs
(as an innovation to the economy) on corporate borrowers. It also improves the understanding of
the connections among loan pricing, market frictions, and institutional demand.
Finally, this paper contributes to the literature on securitization and information asymmetry.
The literature suggests that securitization can exacerbate adverse selection and moral hazard issues
in the capital markets for mortgage-backed securities (Loutskina and Strahan (2009), Mian and
Sufi (2009), Downing, Jaffee, and Wallace (2009), and Piskorski, Seru, and Vig (2010)).
Benmelech, Dlugosz, and Ivashina (2012), however, find no such evidence for syndicated loans.
Note that CLOs provide monthly reports to their investors in the CLO tranches. These reports are
publicly available and contain useful information about the values of the loans in a CLO’s portfolio.
We find that CLO ownership is more beneficial for more opaque borrowers. Our results are

consistent with those of Benmelech, Dlugosz, and Ivashina (2012). They suggest that another
reason why loan securitization does not suffer from severe adverse selection problems is that CLOs
produce information and alleviate information asymmetry problems for borrowers.
2. Sample Construction and Summary Statistics

2.1. Sample of ISLOs and SSLOs
To identify the events of ISLOs and SSLOs for the DiD analysis, we begin with a sample
of 158,978 loan facilities in DealScan between 1988 and 2017 that are issued by U.S. firms and
denominated in U.S. dollars.4 Our sample period ends in 2017 because we need at least one year
of Compustat data after loan issuance. We focus on the innovation feature of syndicated loans, so
we use the distribution methods reported by DealScan, and exclude 21,273 loans that are not
syndicated. We also exclude 11,799 repriced loans because their pricing may be different due to
renegotiations (Gorton and Kahn (2000)). 5 These filters reduce our sample to 125,906 loan
facilities. We then merge this sample with Compustat and exclude private borrowers. The final
sample contains 70,425 loan facilities, or 50,554 unique loan packages.
By definition, the ISLO is unique for each firm. But a firm may have multiple SSLOs
during the sample period. Because we use annual data from Compustat, we define an event of a
loan issuance (either ISLO or SSLO) by GVKEY and the issuance year.6 We compare ISLOs with
SSLOs over a window of three years before to five years after the issuance year, and exclude
13,838 seasoned loan packages issued within five years of an ISLO. This filter reduces the number
4
The start date of our sample period is based on DealScan’s data availability. The number of observations in the early
years is small, and, in particular, we do not have observations for 1989-1991 after applying the necessary filters. Also
note that a syndicated loan is typically issued with a package of different types of facilities such as revolving credit
lines, term loans, letters of credits, or delayed-draw term loans, etc. Most frequently, a credit line and a term loan are
issued together in a syndicated loan package. The term loan may be amortizing with a progressive repayment schedule,
or institutional (B-term, C-term, D-term, covenant-lite, or second-lien loans) with a bullet payment when the loan
matures (S&P (2016)).
5
We classify a loan as repriced if there is another loan with the same borrower, same loan type, and same maturity
date before this particular loan.
6
Note that multiple SSLOs may take place in the same year for some firms. We aggregate all loans during the same
year into one observation, which may overestimate the impact of an SSLO on corporate policies. However, the bias
in the DiD estimation is against us in finding any significant difference between ISLOs and SSLOs.

of events to 31,910 (9,399 for ISLOs and 22,511 for SSLOs). We further require that both the
ISLO and SSLO issuers have been in Compustat for longer than five years in order to reduce the
impact of newly listed firms. We exclude firms with missing information to calculate Tobin’s Q.
These steps reduce the number of events to 20,085 (3,536 for ISLOs and 16,549 for SSLOs).
Instead of using all seasoned loan offerings, we construct a matched sample so that firms
issuing initial syndicated loans and those issuing seasoned syndicated loans are comparable. For
each ISLO event, we find SSLO events from different firms, in the same year, in the same two-
digit SIC industry, and with the closest Tobin’s Q. We select up to three closest matches. This
matching procedure reduces our sample size to 8,174 events (2,315 for ISLOs and 5,859 for
SSLOs). We exclude an ISLO if we cannot identify at least one SSLO match.
Finally, we define a study window of [-3, +5], with year 0 being the loan issuance year.
We expand the sample to include all years within the study window. This expanded sample has
46,993 observations identified by GVKEY, loan issuance year, and Compustat report year.7 We
exclude 9,426 observations for firms in finance industries (one-digit SIC of 6) and utility industries
(two-digit SIC of 49), and 976 observations with missing values in regressors. Therefore, for the
[-3, +5] study window, we have 36,591 observations. We also define a shorter study window of [-
1, 0] to distinguish between short and long impacts, which has 9,344 observations.
2.2. Sample of Loans with CLO Ownership Information

To examine the impact of CLO ownership on loan pricing and corporate policies, we merge
loan information from DealScan with CLO ownership information from the Creditflux CLO-i
database. Coverage of CLO-i data begins in 2003, so we start from 2003 in DealScan. We exclude
loans that are not syndicated in the U.S. or not denominated in U.S. dollars. We also exclude
banker’s acceptance, deferred payment and step-payment leases, synthetic leases, floating-rate and
7
For ease of presentation, we also refer to an observation defined by GVKEY and loan issuance year as a loan. The
expansion in this step simply adds the annual data within the [-3, +5] window for our regression analysis. We use the
GVKEY – loan issuance year, or the loan fixed effects, to remove the impact of time-unvarying unobservable firm
characteristics.
10

fixed-rate notes, guarantees, and guidance lines. Because we require company name and facility
end date (loan maturity date) to match with the Creditflux CLO-i database, we exclude loans
missing that information. These steps leave us with 92,701 loan facilities issued by 24,655 firms
from 2003 to 2018 on the DealScan side.
The Creditflux CLO-i platform (https://cloi.creditflux.com) provides comprehensive

historical data on collaterals (i.e., investments, which are mostly leveraged loans), tranches,
transactions of collaterals, collateralization test results, and equity tranche payments for all CLO
funds covered by the database. CLO-i obtains information from monthly trustee reports and
payment reports compiled by CLO managers. To obtain CLO ownership information for loans in
DealScan, we begin with a dataset on the CLO-i platform that contains collateral information for
all covered CLO funds: CLO fund name and manager name, collateral-related information such as
loan issuer name, loan type, maturity date, interest rate, and credit ratings, and holding-related
information, such as current balance in each loan at monthly frequency. To focus on loan
collaterals and be consistent with the filters used in DealScan, we exclude bonds, credit default
swaps, and equities in the CLO-i database. We also exclude loans that are not issued in the U.S.
or not denominated in U.S. dollars. For matching purposes, we require that information on loan
issuer names and maturity dates be available. After applying these filters, we have 65,252 loans
issued by 8,150 firms in the CLO-i database.
There is no common identifier between DealScan and CLO-i. Therefore, we manually
match loans in CLO-i and DealScan based on loan issuer name, maturity date, and loan type. The
matching procedure consists of two main steps. First, we match loans by issuer name and maturity
date. This step produces 19,949 preliminary matches. Second, we require that loan facilities from
CLO-i and DealScan have the same or consistent loan types, as they often refer to loan types
differently. After identifying exact loan type matches, we examine institutional term loans more
closely. If one source refers to a loan as a Term Loan, and the other has a facility labeled Term
Loan B (TLB), we treat them as consistent loan types. Moreover, if a TLB in CLO-i is matched
with a term loan C (TLC), a term loan A (TLA), and a credit line in DealScan (i.e., the loan package
11

in DealScan does not have a TLB), we consider the TLC in DealScan as a consistent match for the
TLB in CLO-i.8 After this step, we have 27,148 (42%) matches at the facility level.9
Our focus is the initial purchases of a loan by CLOs in the primary market. To proxy for
such allocations (i.e., CLO ownership), we use the CLO reports that are most likely to include
CLO allocations from the primary market. Figure 1 shows how we select the CLO reports from
which the reported holdings of a loan are treated as primary market allocations. Specifically, we
define a window of [−30, 𝑏] for a particular loan. We use thirty days before the loan issuance date
for the left cutoff. Zhang, Zhang, and Zhao (2021) report that a loan is sometimes traded on the
secondary market before loan close. We therefore allow approximately one month before loan
close for the window.
We use two scenarios to determine the right cutoff, b, if a loan is not a repriced loan.
Scenario A covers the first report by a CLO on the CLO-i platform. A CLO uses bridge financing
during a warehouse period to build up its loan portfolio before it can issue tranches of notes. The
warehouse period can last up to nine months (Voya Investment Management (2018)). We thus use
a cutoff of 315 (35*9) days for Scenario A, where a report is the first one for a particular CLO
reporting the loan holdings. Scenario B covers all follow-on monthly reports for a CLO. For these
reports, we use a cutoff of thirty-five days. For all reports, if a loan is repriced, and the reprice date
is earlier than the respective 315/35-day cutoffs, we use the reprice date as the cutoff. For each
CLO report, if the report date falls within the above windows, and if the reported holding of a loan
is the first for the CLO, we treat the reported holding as a primary market allocation. We then
8
We do not treat TLAs or credit lines as consistent loan types unless both datasets refer to a loan as a TLA or a credit
line facility. This is because CLOs mostly invest in leveraged loans (institutional term loans). Furthermore, we always
use the information on all the loan types in a package from DealScan before we determine whether a loan facility in
CLO-i and in DealScan are of the consistent type. Note that these loans have been matched by firm name and maturity
date at the package level.
9
We note further that some observations in DealScan with the same borrower, loan type, and maturity date are repriced
loans. Repriced loans with the same facility start date as a loan that is already outstanding are generally an add-on
(additional lending) with the same spread and maturity as the existing loan. In this case, we aggregate the facility
amount to the earlier loan and only keep the earlier loan in the sample. For repriced loans with different facility start
dates, we treat them as different observations (facilities). Our results do not change if we drop these repriced loans.
12

aggregate these primary market allocations from all CLOs to calculate the (primary market) CLO
ownership measures (see Section 2.3).10
Note that, for the matched sample of 27,148 facilities, we use all available CLO reports.
After filtering out the reports outside the proper cutoff windows, we are left with 6,907 unique
loan facilities that have CLO ownership information. We further exclude 754 loans issued by
financial firms (one-digit SIC of 6) or utilities (two-digit SIC of 49), and one loan with missing
loan amount information. Our final sample consists of 6,152 loan facilities issued by 2,546 unique
firms.
2.3. Measures of CLO Ownership
We calculate the CLO ownership of a loan facility as follows:
∑𝐽𝑗=1 𝐶𝐿𝑂𝐴𝑚𝑡𝑖𝑗
𝐶𝐿𝑂𝑂𝑤𝑛𝑒𝑟𝑠ℎ𝑖𝑝𝑖 = ,
𝐿𝑜𝑎𝑛𝐴𝑚𝑡𝑖
where 𝑖 and 𝑗 denote loan facility and CLO fund, respectively. CLOAmt is a CLO fund’s reported
holding of a loan based on the report within the windows, as defined in the previous subsection.
LoanAmt is the offering amount of the loan facility. J is the total number of CLO funds with reports
within the cutoff windows. We also define average CLO ownership per CLO fund of a loan facility,
AvgCLOOwnership, as
𝐽
1 ∑𝑗=1 𝐶𝐿𝑂𝐴𝑚𝑡𝑖𝑗
𝐴𝑣𝑔𝐶𝐿𝑂𝑂𝑤𝑛𝑒𝑟𝑠ℎ𝑖𝑝𝑖 = .
𝐽 𝐿𝑜𝑎𝑛𝐴𝑚𝑡𝑖
The majority of the bonds (tranches) issued by a CLO fund are rated Aaa. For a loan bought
10
Reuter (2006) and Ritter and Zhang (2007) also use the first reported holdings from 13F as proxies for IPO
allocations. Unlike IPOs, flipping is less of a concern for syndicated loans. CLOs may not sign the credit agreement
of a loan, but may instead purchase it on the secondary market for tax-related reasons (S&P (2016)). But these
purchases are given the same discount, if any, and are known to the lead bank. These are de facto primary market
allocations. We believe our cutoffs capture such CLO demand. If our measure captures other secondary purchases that
do not affect the pricing of a loan in the primary market, such noises would bias against us, however.
13

by a CLO fund, we can use the tranche information to calculate how much is owned indirectly by
triple-A investors that may not otherwise invest in the loan. Specifically, we calculate triple-A
ownership for a loan, TripleAOwnership, with the following formula:
∑𝐽𝑗=1 𝑇𝑟𝑖𝑝𝑙𝑒𝐴𝑃𝑜𝑟𝑡𝑖𝑜𝑛𝑗 ∗ 𝐶𝐿𝑂𝐴𝑚𝑡𝑖𝑗

𝑇𝑟𝑖𝑝𝑙𝑒𝐴𝑂𝑤𝑛𝑒𝑟𝑠ℎ𝑖𝑝𝑖 = .
𝐿𝑜𝑎𝑛𝐴𝑚𝑡𝑖
TripleAPortion is the dollar amount of triple-A notes divided by the total amount of notes issued
by a CLO. Similarly, we define average triple-A ownership, AvgTripleAOwnership, as:
𝐽
1 ∑𝑗=1 𝑇𝑟𝑖𝑝𝑙𝑒𝐴𝑃𝑜𝑟𝑡𝑖𝑜𝑛𝑗 ∗ 𝐶𝐿𝑂𝐴𝑚𝑡𝑖𝑗
𝐴𝑣𝑔𝑇𝑟𝑖𝑝𝑙𝑒𝐴𝑂𝑤𝑛𝑒𝑟𝑠ℎ𝑖𝑝𝑖 = .
𝐽 𝐿𝑜𝑎𝑛𝐴𝑚𝑡𝑖
To provide a fuller picture of the securitization of syndicated loans, we plot year, industry,
and rating distributions of loans with CLO ownership information in Figure 2. In Panel A, the
number of securitized syndicated loans varies cyclically, with an overall upward trend during the
sample period. Average CLO ownership remains very low before the financial crisis, increases
rapidly from 3.5% in 2007 to 16.3% in 2010, drops slightly to 12.8% in 2012, and then roars to
28.5% in 2018. The average number of CLO managers exhibits a similar pattern.
Panel B shows the Fama-French 12 industry distributions of loans with CLO ownership
information (excluding financial firms and utilities). We do not observe apparent industry
clusterings in loan securitization, although CLOs tend to prefer firms in Business Equipment and
Shops over those in Energy. This pattern of no clusterings occurs largely because CLOs have strict
rules on collateral diversification. Average CLO ownership is also similar across different
industries, with the highest in Business Equipment at 19.9%, and the lowest in Energy at 15.1%.
The average number of CLO managers shows similar industry distribution as average CLO
ownership.
Panel C reports the rating distributions of loans with CLO ownership information.
Securitized loans cluster around B1, B2, and B3 ratings. The number of securitized loans is the
highest in B2, and monotonically decreases when ratings move higher or lower. Moreover, almost
14

all the securitized loans are below investment-grade, i.e., below Ba1 (inclusive). It is worth noting
that the majority of CLO notes are rated Aaa. This credit rating transformation contributes to an
important part of CLOs’ profits.
Regarding ownership, Baa2-rated loans have the highest CLO ownership at 21.9%, while
a single D-rated loan has the lowest CLO ownership, with 0.9%. But the numbers of loans in these
two categories are small. The distribution of the average number of CLO managers is similar to
that for CLO ownership. The highest average number of CLO managers for a loan is 30.6 in Baa2,
and the lowest is 1.0 in D.
2.4. Summary Statistics
Table 1, Panels A and B, report summary statistics for the sample of ISLOs and SSLOs
and the sample of loans with CLO ownership information, respectively. Variable definitions are
in the Appendix. In the ISLO/SSLO sample in Panel A, 37% of the observations are for ISLOs,
and the remaining are for the matched seasoned loans. The average leverage of syndicated loan
issuers is 32%. Among the total debt for a firm in the sample, bonds and bank loans are 41% and
30%, respectively. In terms of investments, the average capital expenditure, R&D, and acquisitions,
all scaled by firm assets, are 6.6%, 5.4%, and 4.9%, respectively.
For the loan sample with CLO ownership information in Panel B, the average all-in-drawn
interest rate spread is 425 bps, and the median value is 400 bps. Berger, Zhang, and Zhao (2021)
report an average interest rate spread of 289 bps for a sample of traded institutional term loans.
The much higher spread for our sample is consistent with the fact that CLOs engage in rating
transformation, and invest more in much risker loans. On average, there are fifty-two CLO funds,
or fifteen CLO managers, holding 18% of a loan. The mean and median value of CLO ownership
per CLO fund, AvgCLOOwnership, is 1.4% and 0.4%, respectively, suggesting that the distribution
is skewed right. On average, 11% of a loan is held by CLO investors through the triple-A tranches.
For borrower characteristics, the average total assets are $7.0 billion for the CLO sample
15

(Panel B) and $5.5 billion for the sample of ISLOs and SSLOs (Panel A). The average leverages
are 0.53 and 0.32, respectively, for these two samples. These numbers suggest that CLOs tend to
securitize loans from larger firms, and firms with higher leverage relative to the DealScan universe.
3. Initial Syndicated Loan Offerings (ISLOs) and Corporate Financing and Investments
Syndicated loans are a corporate debt structure innovation that integrates the monitoring of
a traditional bank loan with the improved risk sharing. Therefore, the financing cost of a syndicated
loan would be lower than the weighted average cost of capital of the same amount of financing by
issuing a bond and a traditional bank loan separately. Holding all else equal, firms would use more
syndicated loans and less of other financial instruments such as corporate bonds once they gain
access to the syndicated loan market. In this section, we employ a DiD methodology to compare
firms’ debt structure and investment changes after their ISLOs with the changes after their SSLOs.
Particularly, we estimate the following model:
𝐶𝑜𝑟𝑝𝑃𝑜𝑙𝑖𝑐𝑦 = 𝛼 + 𝛽1 𝑃𝑜𝑠𝑡𝐼𝑠𝑠𝑢𝑒 ∗ 𝐼𝑆𝐿𝑂𝐷𝑢𝑚 + 𝛽2 𝑃𝑜𝑠𝑡𝐼𝑠𝑠𝑢𝑒 + 𝐶𝑜𝑛𝑡𝑟𝑜𝑙𝑠 +
𝐿𝑜𝑎𝑛, 𝐹𝑖𝑟𝑚 𝑅𝑎𝑡𝑖𝑛𝑔, 𝑎𝑛𝑑 𝐶𝑜𝑚𝑝𝑢𝑠𝑡𝑎𝑡 𝑅𝑒𝑝𝑜𝑟𝑡 𝑌𝑒𝑎𝑟 𝐹𝑖𝑥𝑒𝑑 𝐸𝑓𝑓𝑒𝑐𝑡𝑠 + 𝜖 (1)
The dependent variable, CorpPolicy, covers corporate policies such as leverage, debt structure,
and capital expenditure. PostIssue is a dummy variable that equals 1 if the report year is after the
date of the initial or a matched seasonal loan issuance, and 0 otherwise. ISLODum is a dummy
variable that equals 1 for a firm if it issues its first syndicated loan in year 0, and 0 for the matched
control firms that issued seasoned loans. We follow the literature to select the control variables
(e.g., Chava and Roberts (2008) and Rauh and Sufi (2010)). These controls include total assets,
Tobin’s Q, cash flow, and tangibility. Firm rating is the S&P quality ranking in Compustat. We
double-cluster standard errors at firm and year levels to account for potential correlations.
The OLS regression results are reported in Table 2. Panel A uses a window of [-1, 0], where
year 0 refers to the loan offering year. Note that we use Compustat annual data, so the numbers at
the end of year 0 can capture the short-term impact of the initial loan or a matched seasoned loan
16

offering. The coefficients on the interaction variable, PostIssue*ISLODum, suggest that, after the
ISLO, a firm experiences a greater increase in leverage, a greater reduction in bond financing, and
a greater increase in loan financing relative to the changes after an SSLO. For corporate
investments, after ISLOs, firms see greater increases in capital expenditure, R&D expenses, and
acquisitions relative to the changes after SSLOs.
For example, comparing capital expenditure after and before loan issuances, an ISLO is
associated with a 0.62% greater increase than an SSLO. This increase is economically meaningful,
because this represents 10% of the average capital expenditure in the sample.
Table 2, Panel B, extends the study window to [-3, +5] to examine whether the impact of
gaining access to the syndicated loan market on corporate policies is transitory. In Columns (1) to
(3), we observe that the coefficient estimates on the interaction term PostIssue*ISLODum are all
statistically significant at the 1% level, and all have the same signs as in Panel A. These results
imply that gaining access to the syndicated loan market has a lasting effect on corporate financing
choices.
The coefficient estimates on PostIssue* ISLODum in Columns (4) and (5) of Table 2, Panel
B, are not statistically significant. This suggests that the impacts on capital expenditure and R&D
expenses are mainly short term. In Column (6), the coefficient on the interaction term is still
positive and statistically significant at the 1% level, although the magnitude of the point estimate
is much smaller than that in Panel A. This result is consistent with the fact that syndicated loans
are often used to support corporate mergers.
Overall, the results in Table 2 are robust and supportive of syndicated loans being a
corporate debt structure innovation argument. They suggest that gaining access to the syndicated
loan market is beneficial to a borrower. The availability of syndicated loan financing enables a
firm to increase leverage and shift its debt structure toward greater use of loans. Furthermore, firms
tend to invest more and conduct more R&D and acquisitions, although the effect on capital
expenditure and R&D tends to disappear over the long run.
Finally, we note that the results on the effect of initial loan offerings are unlikely to be
driven by biases related to endogeneity. Corporate financing decisions, including source and
17

timing, are likely to be strategic. However, the financing and timing choices cannot explain why
an initial loan offering would have a much more significant impact on corporate policies than a
seasoned one. In other words, our results are unlikely to be affected by a firm’s choices because
we compare the same type of external financing. Instead, ISLODum captures the initial impact of
an enlarged opportunity set for a borrower.
Nevertheless, we use the Leveraged Lending Guidance (LLG) issued by the Federal
Reserve in June 2013 as an exogenous shock to syndicated lending. This guidance advises financial
institutions to, among other things, maintain well-defined underwriting standards, periodically
monitor leveraged exposures, and comply with policies across all business lines. The syndicated
loan market cooled down after the guidance.11 We posit that the impact of an ISLO on corporate
policies should be stronger after the LLG because the bar was higher for entering the syndicated
loan market, and access to syndicated lending became more valuable to borrowers. We define a
dummy variable LLGDum that equals 1 if a loan is issued after 2014 (inclusive), and 0 otherwise.
We interact LLGDum with PostIssue* ISLODum and run triple difference regressions. The results
are in Table 3.
The LLG seems to have achieved its intended effects. In Column (3), with bank loans as
the dependent variable, the coefficient on PostIssue* LLGDum is negative and statistically
significant at the 10% level. This suggests that the LLG has dampened the use of bank loans.12
Consistent with our hypothesis, the effects of ISLOs are stronger in all regressions in Table 3,
except for in Column (5), where the estimate on the triple interaction term has the opposite sign,
but with a small, insignificant coefficient. Specifically, in the debt structure regressions, the
11
See https://www.federalreserve.gov/supervisionreg/srletters/sr1303a1.pdf for more information about the guidance,
and https://libertystreeteconomics.newyorkfed.org/2016/05/did-the-supervisory-guidance-on-leveraged-lending-
work/ for anecdotal evidence on its negative impact on leveraged loan volume. Figure 2.A in our paper also shows
that the number of securitized loans dropped after 2013, although the volume recovered in 2017. The guidance
provides a relatively clean laboratory for our tests, because no other lending guidance was issued after 2013 (see
https://www.reuters.com/article/llg-revisions/occ-head-says-leveraged-lending-guidance-needs-no-revisions-
idUSL2N1SV24T).
12
Note that, in contrast to Table 2, we do not include year fixed effects in Table 3, because the year dummies would
consume the effects of LLGDum. The negative coefficients on PostIssue* LLGDum in Columns (5) through (7) are
consistent with the intended cooling effects of the LLG. However, they may also capture (omitted) macroeconomic
conditions in the years after 2014.
18

coefficient estimates on PostIssue*ISLODum*LLGDum are negative for post-issuance bond levels
in Column (2), and positive for post-issuance levels of term loans in Column (4). Both are
statistically significant at the 10% level.
In the investment regressions, the coefficient estimates on the triple interaction term are
positive and statistically significant for R&D in Column (6) and acquisition expenses in Column
(7). These results mitigate potential endogeneity concerns, and further support our financial
innovation hypothesis. Even if a firm may find term loans more attractive after the ISLO than an
SSLO due to omitted variables, there is no reason to believe, beyond our hypothesis of the
syndicated loan market becoming more attractive after the LLG, why the difference between ISLO
versus SSLO would be more significant after the LLG. Similarly, an ISLO firm may have more
acquisition opportunities than an SSLO firm, but it is unlikely for the omitted variables or reverse
causality to be related to an exogenous shock like the LLG. Thus, the differential impacts of ISLO
on a borrower’s financing and investment decisions due to the LLG, as captured by the coefficients
on the triple interaction term, suggest that the ISLO effect is likely to be causal.
4. CLO Ownership, Loan Spreads, and Corporate Investments

Loan securitization and CLOs play an important role in the syndicated loan market.
Through rating transformation, loan securitization mitigates the adverse effects of market
segmentation and information asymmetry, and tends to increase investor demand for loans.
Through their relationships with banks, CLO managers and their equity investors engage in more
trading of loans and more information production. This helps mitigate the adverse effects of
information asymmetry on the syndicated loan market.13 We thus expect that CLO ownership,
especially from triple-A investors, will have a negative effect on loan interest rate spreads, and a
positive effect on corporate investments.
13
The CLO manager, equity investors, and the lenders of loans in the CLO portfolio are often affiliated. For example,
our conversation with a senior executive at KKR Credit suggests that it is an attractive business for KKR to arrange
CLOs, invest in the equity tranches of its CLOs, and participate in the loan syndications.
19

4.1. Baseline Results
We investigate the impact of CLO ownership on loan spreads by estimating the following
model:
𝐿𝑜𝑔 (𝐿𝑜𝑎𝑛𝑆𝑝𝑟𝑒𝑎𝑑) = 𝛼 + 𝛽𝐶𝐿𝑂𝑂𝑤𝑛𝑒𝑟𝑠ℎ𝑖𝑝 + 𝛾𝐶𝑜𝑛𝑡𝑟𝑜𝑙𝑠 + 𝜇𝐿𝑜𝑎𝑛 𝑅𝑎𝑡𝑖𝑛𝑔 𝐷𝑢𝑚𝑚𝑖𝑒𝑠 +

𝐿𝑒𝑎𝑑 𝐵𝑎𝑛𝑘, 𝐼𝑛𝑑𝑢𝑠𝑡𝑟𝑦, 𝐿𝑜𝑎𝑛 𝑃𝑢𝑟𝑝𝑜𝑠𝑒, 𝑎𝑛𝑑 𝑌𝑒𝑎𝑟 𝐹𝑖𝑥𝑒𝑑 𝐸𝑓𝑓𝑒𝑐𝑡𝑠 + 𝜖 (2)
Log (LoanSpread) is the natural logarithm of the loan interest rate spread above the London
Interbank Offered Rate (LIBOR). CLOOwnership is the total primary allocations directed to CLO
investors, as defined in Figure 1, over the total offering amount of a syndicated loan. For ease of
reporting the coefficients, the CLO ownership measures are in decimals in all regressions. Controls
consists of a set of variables that can affect loan spreads. Specifically, we include a public firm
indicator to control for different degrees of information asymmetry and accessibility to public
financing sources for public and private firms. To capture the effects of investor demand or
investors’ capital supply, especially for traditional loan investors such as banks and finance
companies, we include the number of lenders reported by DealScan in the model.14
Other loan terms, such as facility amount, maturity, and secured status, are included to
capture loan-specific risks (Ivashina and Kovner (2011) and Bharath, Dahiya, Saunders, and
Srinivasan (2011)). We include loan rating dummies to control for borrower- and loan-level risks.
We add year and industry fixed effects to control for industry- and macro-level factors. Sorting is
common in the capital markets, and lead banks usually have specializations. So we include lead
bank fixed effects and loan purpose fixed effects. To account for serial correlations within the
same borrower and within the same time period, we double-cluster standard errors at the firm and
year-quarter levels.15 See the Appendix for more detailed variable definitions.
14
For tax reasons, CLOs do not obtain loan allocations in the primary market. Instead, the lead bank in a loan syndicate
often keeps loan shares for CLOs at loan close. CLOs then buy the loan at the offer price from the lead bank on the
secondary market (S&P (2016)).
15
We double-cluster standard errors at the firm and year levels when estimating the ISLO effect. The CLO ownership
sample is from 2005 to 2018 (14 years). We do not double-cluster at firm and year levels here because it will reduce
the degree of freedom to 13 (=14-1). Nevertheless, our results are robust if we double-cluster the standard errors at
firm and year levels.
20

Table 4 reports the OLS regression results. To show how lead bank heterogeneity affects
loan spreads, we control for lead bank fixed effects in Columns (2), (4), and (6), but not in Columns
(1), (3), or (5). We also add control variables in steps to mitigate any concerns about
multicollinearity or that loan spreads are simultaneously determined with other loan terms.
In all specifications, the coefficient on CLOOwnership is negative and statistically
significant at the 1% level. In Column (6), where all control variables and fixed effects are included,
the coefficient estimate on CLOOwnership is -0.141. This implies that, everything else equal, a 1-
standard deviation increase in CLO ownership (17.75%) is associated with a 10.64-bp decrease
(=0.1775*(-0.141)*425.3 bps; 425.3 bps is the mean spread, as in Panel B of Table 1) in loan
spreads if we evaluate the change at the mean loan spread. For the average loan in our sample,
with an amount of $555 million, this suggests that a firm can save up to nearly $600,000 in interest
rate payments every year.
Another benchmark may also be a useful anchor point. Beyhaghi and Ehsani (2017) report
that an aggregate value-weighted index of all loans in their sample has an average monthly return
of 0.388%, or 39 bps. If a loan can attract 17.75% more CLO ownership, investors as a whole will
obtain 10.64 bps less in interest spread, representing 27% of the average monthly return of traded
loans. Given the average maturity of seventy-two months, or six years (as shown in Panel B of
Table 1), investors in a loan effectively give up returns of 1.6 months (0.27* 6 years) from a broad
loan portfolio when they observe a 17.75% higher CLO ownership. If the market is efficient, and
the investors in the syndicated loan market are rational, our coefficient estimates in Table 3 suggest
that securitization of syndicated loans have a very significant effect on loan pricing.
4.2. Number of CLOs and Loan Spreads
In a loan with a 10% CLO ownership, there may be one CLO holding 10%, or ten CLOs
holding 1% each. The two cases are different because, in the latter, the firm is connected with more
CLO investors. In this section, we study how the number of CLO investors in a loan affects loan
spreads. We construct two variables, Log (NumCLOFund) and Log (NumCLOManager). The
21

former is the natural logarithm of the total number of CLO funds in a syndicated loan. Because a
CLO manager typically manages multiple funds simultaneously, we also construct the latter
measure, the natural logarithm of the total number of CLO managers in a syndicated loan.
We report the OLS regression results in Table 5. The coefficients on Log (NumCLOFund)
are negative and statistically significant at the 1% level in Columns (1) to (3), where we add the
control variables in steps. Economically, using Column (3) as an example, the coefficient estimate
on Log (NumCLOFund) is -0.011, suggesting that a 1-standard deviation increase in the logged
number of CLO funds in a loan (1.747) is associated with a 8.17-bp lower loan spread. The
coefficients on Log (NumCLOManager) are also negative and statistically significant at the 1%
level, as reported in Columns (4) to (6). These results suggest that the impact of CLO ownership
on loan spreads is robust if we use alternative measures.
4.3. Triple-A Tranching and Loan Spreads
Securitization can mitigate market frictions by intermediating firms with speculative-grade

ratings with investors who prefer investment-grade assets. Particularly, CLOs raise a majority of
their funds by issuing triple-A notes for investing in below-investment-grade syndicated loans.16
Consider an institutional loan with market demand of $100 million. The borrowing firm needs
$200 million for investments. Without securitization, the firm will only be able to raise $100
million, and will face financing constraints. The market demand from triple-A investors for the
loan is $50 million, but will stay on the sidelines without securitization. Suppose that $10 million
of the $100 million in institutional demand comes from a CLO manager. This manager can issue
$50 million notes to triple-A investors, and concentrate most of the risk in its equity tranche of $10
million. Thus, the manager can now take $60 million for the loan, and the total financing for the
firm will be $150 million. In this example, the CLO ownership is 40% (60/150), and the triple-A
16
CLO financing also comes from other rating classes, including an equity tranche. But triple-A notes always account
for a major part of a CLO’s financing.
22

ownership is 33% (50/150).17 More importantly, both ownership measures explicitly capture the
incremental demand due to securitization and the degree of financial constraint relaxation. We
posit that a loan will have a lower interest rate spread if it can attract more triple-A ownership
through CLOs.
We report the effect of Triple-A ownership on loan spreads in Table 6. In all specifications,
the coefficients on TripleAOwnership are negative and statistically significant at the 1% level.
Consistent with the argument that triple-A tranching helps mitigate regulatory and adverse
selection concerns, the magnitude of the coefficient estimates on TripleAOwnership in all three
columns in Table 6 is much larger than that on overall CLO ownership with the same model
specifications in Table 4. For example, in Column (3), where all control variables are included,
the coefficient estimate on TripleAOwnership is -0.249. The coefficient on the overall CLO
ownership in Column (6) in Table 3 is -0.141. These estimates suggest that triple-A ownership has
a 77% greater impact on loan spreads than overall CLO ownership. Economically, a 17.75%
increase in triple-A ownership is associated with an 18.80-bp reduction in loan spreads when
evaluated at the sample mean. Note further that a 17.75% increase in overall CLO ownership is
associated with a 10.64-bp reduction in loan spreads.
4.4. Cross-Sectional Variations of CLO Effects
Syndicated loans integrate bank monitoring and risk sharing. Loan securitization is an
important vehicle in the development of the syndicated loan market, because it can mitigate market
frictions due to segmentation and information asymmetry. These financial innovations are more
important for borrowers with higher monitoring or information needs. In this section, we provide
cross-sectional evidence to shed further light on the connections between loan securitization and
loan pricing.
17
The securitization capacity of a manager can be related to its connections to triple-A investors and its capacity to
handle risk. Therefore, another manager for a different loan may take a total of $100 million, and split it into $20
million for the equity tranche and $80 million for the triple-A tranche. This creates variations in ownership measures.
23

We first split the sample by Moody’s credit ratings. We define RateLow as a dummy
variable that equals 1 if a loan has a Moody’s rating below B2 (inclusive) or does not have a rating,
and 0 otherwise.18 We then regress loan spreads on the interaction terms between RateLow and
CLO or triple-A ownership measures. The results are in Table 7.
In Column (1), the coefficient on the interaction term, RateLow*CLOOwnership, is
negative and statistically significant at the 1% level. This suggests that the impact of CLO
ownership on loan spreads is stronger when a loan has a lower or no rating. Economically, a 1-
standard deviation increase in CLO ownership (17.75%) is associated with 14.49 bp (-
0.192*0.1816*425.3 bps) lower spreads in loans with low or no ratings than those with high ratings.
The coefficient on the interaction term in Column (2), RateLow*TripleAOwnership, is also
negative and statistically significant at the 1% level, suggesting that the impact of triple-A
ownership on loan spreads is more pronounced in loans with lower or no ratings. Consistent with
our early results on the comparisons of the overall CLO and triple-A ownerships, the magnitudes
of the coefficient estimates in Column (2) on triple-A ownership are again much larger than those
in Column (1) on overall CLO ownership measures.
Second, we interact CLO ownership variables with a dummy variable that denotes whether
a firm is relatively more opaque. Following the literature, the dummy variable Opacity is set to 1
if a firm is private or has above-median analyst estimation dispersions. We interact this dummy
variable with CLO or triple-A ownership measures, and report the OLS regression results in Table
8. The measure for opacity is reported at the top of each column. In Columns (1) and (2), the
coefficient estimates on Opacity*CLOOwnership are -0.085 and -0.215, respectively. They are
both statistically significant at the 5% level. In Columns (3) and (4), the coefficient estimates on
Opacity*TripleAOwnership are -0.123 and -0.386, respectively. They are statistically significant
at the 10% and 5% levels, respectively. These results imply that the impact of CLO ownership on
loan spreads is much stronger for more opaque firms.
18
This variable captures both market segmentation and information asymmetry. Due to regulations, investors such as
insurance companies only invest in investment-grade assets. Loans with lower or no ratings are subject to more severe
market segmentation problems. Loans without ratings are also more opaque than loans with ratings.
24

Overall, the results in Tables 7 and 8 provide strong support for theories that loan
securitization mitigates market frictions due to market segmentation and information asymmetry
(e.g., DeMarzo (2005)). Firms with low or no ratings are likely to be riskier and to face more
financing constraints and market frictions. More opaque firms can benefit more from information
production and monitoring. The greater magnitudes of the coefficients on triple-A ownership shed
further light on the importance of bringing more investors to risky loans. Thus, we find that the
differential impacts of overall CLO ownership and triple-A ownership, and their impacts on firms
with differing information asymmetry and constraints, lend direct support for the role of CLOs in
bringing more efficiency to the syndicated loan market.
4.5. CLO Effect, or Overall Market Demand?
Lower loan spreads may simply be driven by stronger loan demand in the primary market.
Our early results on CLO ownership could reflect the underlying demand for different loans. To
mitigate this concern, we conduct two additional tests. First, we control for days on the market,
the number of days between loan launch date and facility start date as a proxy for loan demand
from institutional investors (Ivashina and Sun (2011)). Second, instead of using total CLO
ownership in a loan, we use average CLO ownership across all CLO investors in a loan. Strong
demand may attract more CLO investors, but it may not significantly increase the ownership for
individual CLO investors. This is because diversification requirements (concentration limitations)
prevent CLOs from investing too much in one single loan or firm. Consequently, the average
ownership measure suffers less from omitted variables that proxy for market demand.
The regression results are in Table 9. In Columns (1) and (2), after including days on the
market as an additional control variable, the coefficients on CLOOwnership and
TripleAOwnership are still negative and statistically significant at the 1% level. The magnitudes
of these coefficients are slightly larger than those in the baseline regressions. In Column (3), the
coefficient on AvgCLOOwnership is -0.552, and it is statistically significant at the 1% level. In
Column (4), the coefficient on AvgTripleAOwnership is -1.119, and it is also statistically
25

significant at the 1% level. These results suggest that the impact of CLO ownership on loan spreads
is unlikely to be driven by (omitted) overall market demand.
4.6. CLO Ownership and Corporate Investments
Our early results suggest that loan securitization and CLO ownership help lower a firm’s
financing costs. In this subsection, we examine whether these market improvements result in any
real economic gains. More specifically, we posit that CLO ownership is positively associated with
the borrowing firm’s post-loan capital expenditure, because more positive-NPV projects are
feasible due to lower financing costs.
To study how loan securitization and CLOs affect a firm’s investments, we merge the loan
sample with CLO ownership information with Compustat annual data. We define a study window
of [-3, +5], where year 0 refers to the loan issuance year. Because many of the firms in the sample
are private and do not have financial information in Compustat, the loan sample in this subsection
only includes 9,751 observations. Each observation is a firm-year combination in the window of
[-3, +5] with a loan issuance at year 0. 19 Note that the numbers of observations vary in the
regressions due to missing values. Also, for borrowers with multiple loan issuances in a year, we
take the mean, choose maximum CLO ownership among the loans, or use CLO ownership of the
last loan as alternative measures.
We estimate the following model:
𝐶𝑎𝑝𝐸𝑥 = 𝛼 + 𝛽𝑃𝑜𝑠𝑡𝐼𝑠𝑠𝑢𝑒 ∗ 𝐶𝐿𝑂𝑂𝑤𝑛𝑒𝑟𝑠ℎ𝑖𝑝 + 𝜆𝐶𝐿𝑂𝑂𝑤𝑛𝑒𝑟𝑠ℎ𝑖𝑝 + 𝛾𝑃𝑜𝑠𝑡𝐼𝑠𝑠𝑢𝑒 +
𝜂𝐶𝑜𝑛𝑡𝑟𝑜𝑙𝑠 + 𝐿𝑜𝑎𝑛, 𝐹𝑖𝑟𝑚 𝑅𝑎𝑡𝑖𝑛𝑔, 𝑎𝑛𝑑 𝐶𝑜𝑚𝑝𝑢𝑠𝑡𝑎𝑡 𝑅𝑒𝑝𝑜𝑟𝑡 𝑌𝑒𝑎𝑟 𝐹𝑖𝑥𝑒𝑑 𝐸𝑓𝑓𝑒𝑐𝑡𝑠 + 𝜖 (3)
where PostIssue is a dummy variable that equals 1 if an observation occurs after loan issuance,
and 0 otherwise. We include total assets to control for the size effect. Neoclassical q theory
19
There may be overlapping windows if a firm has two loans issued within a short period. In these cases, part of the
effect of the second loan on corporate investments could be picked up by the first loan. However, the average effects
in the regressions should remain consistent. Also, for both Eq. (3) here and Eq. (1) for the ISLO effects, we use shorter
windows. The results are robust.
26

suggests that marginal q is the only factor that determines firm investments. Although marginal q
is unobservable, we follow the literature, and use Tobin’s Q as a proxy (Bakke and Whited (2010)
and Chava and Roberts (2008)).
We also control for current cash flow and lagged cash flow to capture the discrepancy
between marginal q and Tobin’s Q (Cooper and Ejarque (2003) and Chava and Roberts (2008)).
To account for serial correlations within the same firm and time period, we double-cluster standard
errors at the firm and year levels.
Table 10 reports summary statistics of the variables and the OLS regression results. In
Panel A, the summary statistics show that firms in this sample are large firms with high leverage
but low capital expenditure relative to the Compustat universe. We posit that they invest less
because they are more financially constrained due to high leverage. This pattern highlights the role
of CLOs, because CLOs can bring in triple-A investors for potentially constrained borrowers.
Table 10, Panel B, shows the OLS regression results. In Columns (1) and (2), we use
average CLO ownership across loans issued in a year. In Columns (3) and (4), we choose the
highest CLO ownership across loans issued in a year. In Columns (5) and (6), we use CLO
ownership of the last loan issued in a particular year. The coefficient estimates on PostIssue *
CLOOwnership are all positive and statistically significant at the 1% or 5% levels. This suggests
that a loan with greater CLO ownership is associated with more capital expenditure after loan
issuance than one with lower CLO ownership. These findings echo our previous results on ISLOs
and corporate investments, as loan securitization and CLOs further remove market frictions for
constrained borrowers.
To investigate how the effects of CLO ownership on capital expenditure evolve before and
after loan issuances, we decompose the PostIssue dummy into nine dummy variables that indicate
the years relative to the loan issuance year. We interact them with the CLO ownership measure.
Particularly, we estimate the following model:
27

𝐶𝑎𝑝𝐸𝑥 = 𝛼 + ∑−3≤𝑛≤5 𝛽𝑛 𝐶𝐿𝑂𝑂𝑤𝑛𝑒𝑟𝑠ℎ𝑖𝑝 ∗ 𝑊𝑖𝑛𝑑𝑜𝑤(𝑛) + 𝜆𝐶𝐿𝑂𝑂𝑤𝑛𝑒𝑟𝑠ℎ𝑖𝑝 +
∑−3≤𝑛≤5 𝛾𝑛 𝑊𝑖𝑛𝑑𝑜𝑤(𝑛) + 𝜂𝐶𝑜𝑛𝑡𝑟𝑜𝑙𝑠 +
𝐿𝑜𝑎𝑛, 𝐹𝑖𝑟𝑚 𝑅𝑎𝑡𝑖𝑛𝑔, 𝑎𝑛𝑑 𝐶𝑜𝑚𝑝𝑢𝑠𝑡𝑎𝑡 𝑅𝑒𝑝𝑜𝑟𝑡 𝑌𝑒𝑎𝑟 𝐹𝑖𝑥𝑒𝑑 𝐸𝑓𝑓𝑒𝑐𝑡𝑠 + 𝜖 (4)
where all variables are as defined in Equation (3), except for Window (n). Window (-3/-2/-1)
denotes three/two/one year before loan issuances, and Window (1/2/3/4/5) denotes
one/two/three/four/five years after loan issuances. Window (0) denotes the loan issuance year.
We plot the coefficient estimates on the interaction terms, 𝛽𝑛 , in Figure 3. The coefficients
on the interaction terms, 𝐶𝐿𝑂𝑂𝑤𝑛𝑒𝑟𝑠ℎ𝑖𝑝 ∗ 𝑊𝑖𝑛𝑑𝑜𝑤(𝑛), capture how the different levels of
investments associated with different levels of CLO ownership evolve over time. A significant
jump from the loan issuance year to one year afterward, and the positive coefficients after loan
issuance years, suggest that firms with loans that have high CLO ownership spend more in capital
expenditure after loan issuances.
5. Robustness Tests and Endogeneity Issues

5.1. Robustness Tests
We execute a rich set of diagnostic tests to ensure the robustness of our findings. Table 11
presents the regression results. In Column (1), we use LoanSpread as the dependent variable. The
results are similar to the baseline regressions, with the logged spreads as the dependent variable.
To control for time-unvarying factors within firms, we replace lead bank fixed effects with
firm fixed effects in Column (2), and control for both in Column (3). The coefficients on
CLOOwnership are negative and statistically significant at the 1% level in both columns. The
magnitude of these point estimates is also similar to that in the baseline regressions.
To account for potential estimation bias caused by correlation within lead lenders, we
double-cluster the standard errors at firm and lead lender levels. The results in Column (4) show
that our findings are robust.
28

Next, we exclude the 2007-2009 financial crisis period, and re-estimate the regressions in
Column (5). During the financial crisis, many CLOs had a significant amount of junk bonds, credit
default swaps, mortgage-backed securities (MBS), and other asset-backed securities (ABS) in their
portfolios. These could have reduced their ownership in syndicated loans. Moreover, the
expectation of default risk was extremely high, and lenders often screened out low-quality
borrowers and risker securities. These rapid changes during the crisis may have resulted in a
negative relationship between CLO ownership and loan spreads. To ease this concern, we exclude
the crisis period from the sample. The results in Column (5) are robust.
Repriced loans have fewer information asymmetry problems and could benefit from a
borrower’s relationship with CLO investors in earlier loans. In Column (6), we exclude repriced
loans, and our results are similar.
In Column (7), we include additional firm characteristics, such as total assets, leverage,
and cash flow, to mitigate concerns about omitted time-varying variables. Note that the number of
observations is much smaller for this column because we can only estimate this model for public
firms. The coefficient on CLO ownership is still negative and statistically significant. Probably
because information asymmetry is less likely to be a concern for public firms, both the point
estimate and the statistical significance are smaller. These results suggest that the effect of CLO
ownership on loan pricing continues to exist after we control for additional firm risk factors.
5.2. Addressing Potential Endogeneity Issues
Typical endogeneity issues include reverse causality and omitted variables. Reverse
causality is unlikely to be a concern for our setup, because CLOs are not more attracted to loans
with lower spreads. For the omitted variables concern, we have controlled for credit ratings and
other common pricing-related factors. But it is possible that unobservable demand could affect
both the spread and CLO ownership. The results in Table 6 for triple-A ownership, and the results
in Table 9, where overall market demand is controlled for, should partly mitigate this concern. To
29

further address any remaining endogeneity concerns, we create two instrumental variables (IVs),
and employ two-stage least squares (2SLS) regressions.
CLOs are required to comply with a set of covenant tests each month. When a CLO fails a
test, it is often required to buy or sell loans in its portfolio. The important tests include the weighted
average spread (WAS) test, the weighted average rating factor (WARF) test, the
overcollateralization (OC) test, and the interest diversion (ID) test. For the WAS and WARF tests,
the weight of a loan is its par value divided by the total par value of the portfolio. The spread for
a loan is the interest rate spread over a benchmark, usually LIBOR. The rating factor is a numerical
score converted from credit ratings by rating agencies. The WAS and WARF tests require that the
WAS and the WARF of a CLO be above a prespecified level. The OC and ID tests are similar.
The OC test is for a particular tranche class. It requires that the ratio, the total par value of
all collateral (loans) divided by the outstanding amount of the particular class of notes, together
with that of all the notes senior to it in the capital structure, be above a certain level. The ID test is
based on a similar ratio, except that the denominator is the outstanding amount of all the classes
of notes in the capital structure.
For our study, the IV should be relevant for primary market CLO ownership (the relevance
condition), but it should not directly affect the price of a loan (the exclusion condition). Credit
quality tests such as WAS and WARF do not satisfy the exclusion condition, because they are
directly related to loan spreads. OC tests do not satisfy the relevance condition because CLO
managers often need to sell loans and buy back senior tranches (i.e., de-leverage) if they fail the
OC tests.20
However, if a CLO fails an ID test, the distribution of interest income from its loan portfolio
to equity investors is suspended. The CLO is required to use those funds to invest in new loans.
Therefore, the ID test satisfies the IV relevance condition. It serves as an early warning about the
collateral values of a CLO’s loan portfolio. As a result, negative ID test results are likely due to
idiosyncratic reasons for some existing loans. They are unlikely to be related to the pricing of a
20
By definition, a loan sale may change the CLO ownership of a loan in the secondary market, but it does not change
the primary market CLO ownership of the loan.
30

new loan. In other words, ID test results are likely to be exogenous for the pricing of a new loan,
i.e., for determining spread. Reverse causality, i.e., a CLO fund that fails an ID test is attracted to
a loan because of its lower spread, is unlikely. The CLO’s ID test happens before the pricing of
the new loan.
Furthermore, although the CLO may choose to purchase certain loans after it fails an ID
test, we argue that this potential selection is immaterial, because the purpose of buying new loans
is to build par. Any loans rated above CCC can be added to the CLO’s portfolio to increase the
total par value. 21 Nevertheless, we control for loan credit ratings in all regressions in order to
mitigate this potential selection concern.
We use the CLO ID test results to define two IVs. IDTestFailDum is a dummy variable
that equals 1 if any of the CLOs investing in a loan has failed the ID test in the past three months,
and 0 otherwise. IDTestFailRatio is the number of CLOs that have failed the ID test in the past
three months, divided by the number of CLOs investing in a loan. The 2SLS regression results are
reported in Table 12.
The first-stage regression results in Specifications (1) and (3) show that both IVs are
positively and significantly related to CLO ownership. This supports our conjecture that failing ID
tests will induce CLOs to purchase new loans. Moreover, the coefficients on PredCLOOwnership
in the second-stage regressions in Specifications (2) and (4) remain negative and statistically
significant at the 1% level. These findings suggest that our baseline results are robust after
addressing potential endogeneity issues.
6. Conclusion
The syndicated loan market has developed rapidly over the past two decades, becoming
one of the most important sources of financing for firms. We provide supportive evidence on the
hypothesis that syndicated loans are a corporate debt structure innovation that integrates the
21
Loans rated CCC are valued at market prices when calculating ratio tests such as OC and ID tests.
31

monitoring of bank lending with the risk sharing of corporate bonds. This innovation leads to a
lower cost of capital for a syndicated loan than the weighted average cost of simultaneously
borrowing a traditional bank loan and issuing a corporate bond. We use seasoned syndicated loan
issuances as a benchmark in a difference-in-differences setting. We find that a firm issues more
loans but fewer corporate bonds in its debt structure once it gains access to the syndicated loan
market. A firm also has greater incremental increases in corporate investments because of the
lower cost of capital after its initial syndicated loan offering. We find that these effects, associated
with a firm’s initial syndicated loan offering, are generally stronger after the Federal Reserve’s
2013 Leveraged Lending Guidance. Thus, the results are likely to be causal.
The development of CLOs and loan securitization is an integral part of the development of
the syndicated loan market. The involvement of CLOs helps remove two obstacles for borrowers
who seek financing in this market: information asymmetry, and market segmentation. We take
advantage of the comprehensive data on CLO loan holdings from Creditflux to provide important
empirical evidence on the importance of CLOs in the syndicated loan market.
We find that syndicated loans with higher CLO ownership are associated with lower loan
spreads upon issuance. These loan spreads are incrementally lower when the loan shares indirectly
owned by triple-A investors are higher. The impact is stronger in non-rated/low-rated loans and
for more opaque borrowers. The results provide comprehensive and direct support for the
theoretical arguments about the role of CLOs in the syndicated loan market. We also find that
borrowers with higher CLO ownership exhibit greater increases in capital expenditure after
syndicated loan issuances. Furthermore, the negative effect of CLO ownership on loan spreads
remains statistically significant in the 2SLS regressions with CLO interest diversion (ID) test
failures as the IVs. Thus, this suggests the impact of CLOs on loan pricing is causal.
32

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36

Figure 1. CLO Primary Market Allocations
This figure shows how we calculate primary market allocations for a syndicated loan facility. If
the CLO report is not the initial report for a CLO fund (Scenario A), and if the report is between
thirty days prior to the facility start date of a loan, and the earlier date of thirty-five days after the
facility start date and the repricing date, the holding of the loan in the CLO report is considered a
primary market allocation. If the CLO report is the initial report (Scenario B), and it is between
thirty days prior to the facility start date, and the earlier date of 315 days after the facility start date
and the repricing date, the holding of the loan in the CLO report is considered a primary market
allocation.
37

Figure 2. CLO Ownership Distributions
This figure plots year, industry, and rating distributions of CLO ownership in Panels A, B, and C,
respectively. CLO ownership (%) is the total amount of a loan facility held by CLOs, divided by
the facility’s total offering amount, where CLO holdings are primary market allocations as defined
in Figure 1 and the Appendix. Number of managers is the total number of CLO managers with
reported primary allocations in a syndicated loan. In Panels A, B, and C, the horizontal axis denotes
year, industry, and loan rating categories, respectively. The left vertical axis denotes CLO
ownership in percentages and the number of CLO managers per loan, and the right vertical axis
denotes the number of loans.
A. Year Distribution
30.0 1,200
CLO Ownership (%)/Number of Managers
991
25.0 1,000
20.0 756 739 800
Number of Loans
648
15.0 519 600
446 427
408
10.0 346 400
281 306
5.0 200
81 92 95
0.0 0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Number of Loans CLO Ownership Number of CLO Managers
38

B. Industry Distribution
25.0 1,656 1,800
CLO Ownership(%)/Number of Managers
1,600
20.0 1,400
Number of Loans
1,200
15.0
871 872 1,000
646 665 800

10.0
439 600
320 400
5.0 233 261
172
200
0.0 0
C. Moody's Rating Distribution

35.0 2,000
CLO Ownership (%)/Number of Managers
1,800
30.0
1,600
25.0 1,400
Number of Loans
1,200
20.0
1,000
15.0
800
10.0 600
400
5.0
200
0.0 0
39

Table 1. Summary Statistics
This table reports summary statistics for the matched sample between initial syndicated loan
offerings (ISLOs) and seasoned syndicated loan offerings (SSLOs) in Panel A, and the sample of
loans with CLO ownership information in Panel B, respectively. In Panel A, each observation is a
loan-issuance year combination. ISLODum is a dummy variable that equals 1 if a firm issues its
first syndicated loan in that year, and 0 otherwise. Leverage is total debt divided by total assets.
Bond is total bonds divided by total debt. BankLoan is total bank loans divided by total debt.
TermLoan is total term loans divided by total debt. CapEx, RND, and ACQ are capital expenditure,
R&D, and acquisition expenditure, respectively, scaled by the previous year’s total assets. In Panel
B, each observation is based on a loan facility (and the borrowing firm for firm characteristics,
including total assets and analyst coverage). LoanSpread is the all-in-drawn spread from DealScan
(over the benchmark, which is typically the London Interbank Offered Rate, or LIBOR).
CLOOwnership is total primary allocations to all CLOs as defined in Figure 1, divided by total
loan amount of a facility. AvgCLOOwnership is the average CLO ownership across all CLO funds
that have reported primary allocations in a facility. NumCLOFund and NumCLOManager are the
numbers of CLO funds (deals) and managers that have reported primary allocations in a facility.
A CLO manager typically manages multiple CLO funds. TripleAOwnership captures the CLO
ownership of a loan facility that belongs to triple-A investors – this is defined as the summation of
the products between a CLO fund’s reported ownership and its portion of triple-A tranches across
all funds with reported allocations. See the Appendix for other variable definitions. All continuous
variables are winsorized at the 1st and 99th percentiles. The number of observations varies due to
missing values.
Panel A: ISLO and Matched SSLO Sample
N Mean STD P25 P50 P75
ISLO 36,591 0.369 0.483 0.000 0.000 1.000
Leverage (%) 36,591 31.700 27.990 12.920 26.620 42.290
Bond (%) 19,119 41.150 40.930 0.000 35.190 83.460
BankLoan (%) 19,119 29.610 37.900 0.000 5.075 57.130
TermLoan (%) 19,119 13.680 27.230 0.000 0.000 10.920
CapEx (%) 36,293 6.617 7.481 2.306 4.279 7.839
RND (%) 22,380 5.389 7.597 0.603 2.573 7.095
ACQ (%) 34,283 4.891 12.710 0.000 0.020 3.043
TotalAssets ($Million) 36,591 5,490.000 14,094.000 228.900 939.100 3,765.000
Log (TotalAssets) 36,591 6.834 2.020 5.433 6.845 8.234
TobinQ (Ratio) 36,591 1.890 1.159 1.164 1.534 2.181
CashFlow (%) 36,591 8.576 13.150 4.944 9.741 14.840
CurrentCashFlow (%) 36,591 8.290 13.060 4.727 9.548 14.590
Tangibility (%) 36,591 32.090 26.600 12.720 24.710 42.920
40

Panel B: CLO Ownership Sample
YieldSpread (bps) 6,135 425.300 174.700 300.000 400.000 500.000
Log (YieldSpread) 6,135 5.973 0.400 5.704 5.991 6.215
CLOOwnership (%) 6,135 18.160 17.750 3.432 13.040 27.570
AvgCLOOwnership (%) 6,135 1.421 3.284 0.236 0.443 0.921
NumCLOFund 6,135 51.690 72.490 3.000 20.000 71.000
Log (NumCLOFund) 6,135 2.781 1.747 1.099 2.996 4.263
NumCLOManager 6,135 14.590 15.680 2.000 9.000 22.000
Log (NumCLOManager) 6,135 1.960 1.329 0.693 2.197 3.091
TripleAOwnership (%) 5,966 10.830 10.310 2.228 7.996 16.470
AvgTripleAOwnership (%) 5,966 0.810 1.760 0.156 0.290 0.602
DaysonMarket 2,367 21.260 12.080 14.000 19.000 26.000
Log (1+DaysonMarket) 2,367 2.967 0.541 2.708 2.996 3.296
LoanAmt ($Million) 6,135 555.700 633.900 170.000 332.000 674.500
Log (LoanAmt) 6,135 19.610 1.076 18.950 19.620 20.330
Maturity (Months) 6,135 71.970 14.710 60.000 72.000 84.000
Log (Maturity) 6,135 4.250 0.243 4.094 4.277 4.431
PublicDum 6,135 0.456 0.498 0.000 0.000 1.000
NumLender 6,135 4.792 3.872 2.000 4.000 6.000
Log (NumLender) 6,135 1.303 0.733 0.693 1.386 1.792
SecuredDum 6,135 0.935 0.247 1.000 1.000 1.000
Rating 6,135 15.120 2.570 14.000 15.000 16.000
RatingLetter 6,135 B2 B1 B2 B3
TotalAssets ($Million) 2,418 6,941.000 21,890.000 634.400 1,538.000 4,479.000
Log (TotalAssets) 2,418 7.414 1.603 6.453 7.338 8.407
Leverage (%) 2,401 52.500 40.300 24.000 47.000 71.900
LagCashFlow (%) 2,389 7.130 12.200 3.820 7.330 12.000
EPSSTD 827 0.221 0.535 0.035 0.079 0.188
41

Table 2. Initial Syndicated Loan Offerings (ISLOs) and Corporate Policies
This table reports the OLS regression results for the impact of access to the syndicated loan market
(captured by ISLOs) on firm financing and investments. The dependent variables are shown in the
column titles, and are measured in percentages. Leverage is total debt divided by total assets. Bond
is total bonds divided by total debt. BankLoan is total bank loans divided by total debt. TermLoan
is total term loans divided by total debt. CapEx is capital expenditure divided by total assets. RND
is research and development expenditure divided by total assets. ACQ is acquisition expenditure
divided by total assets. PostIssue is a dummy variable that equals 1 if the observation is after the
initial or a matched seasonal loan issuance, and 0 otherwise. ISLODum is a dummy variable that
equals 1 for a firm if it issues its first syndicated loan in year 0, and 0 for control firms that issued
seasoned loans. In Panel A, we only include observations in the window [-1, 0], where year 0 refers
to the loan issuance year. In Panel B, we include observations in the window [-3, +5]. See the
Appendix for control variable definitions. All independent variables are lagged one year, except
for Curr_CashFlow, which is contemporaneous with corporate policies. Firm rating is the S&P
quality ranking in Compustat. The number of observations varies across regressions due to missing
values. Standard errors are double-clustered at the firm and year levels, and t-statistics are in
parentheses. ***, **, and * indicate statistical significance at the 1%, 5%, and 10% levels,
respectively.
42

Panel A: Study Window [-1, 0]
Leverage Bond BankLoan TermLoan CapEx RND ACQ
(1) (2) (3) (4) (5) (6) (7)
PostIssue*ISLO 8.009*** -4.798*** 7.367*** 2.328 0.623*** 0.498** 4.261***

(9.051) (-3.328) (4.102) (1.321) (3.402) (2.647) (5.570)
PostIssue -1.344 -2.142 1.731 2.858 0.552 0.698 5.448
(-0.285) (-0.171) (0.125) (0.858) (0.460) (1.236) (1.264)
Log (TotalAssets) -22.472*** 2.785 0.095 0.638 -2.154** -6.325*** -13.176***
(-5.207) (0.984) (0.033) (0.246) (-2.622) (-8.088) (-5.637)
TobinQ 0.977 0.884 -0.808 -0.320 1.037*** 0.761*** 1.092**
(1.512) (1.213) (-0.729) (-0.305) (6.073) (3.868) (2.350)
CashFlow 0.183*** -0.185** 0.089 0.061 0.059*** -0.011 0.149***
(3.297) (-2.603) (1.042) (0.704) (3.952) (-0.740) (4.511)
Curr_CashFlow -0.156* 0.048 -0.018 0.051 0.041** -0.102*** -0.012
(-1.869) (0.754) (-0.181) (0.554) (2.534) (-3.296) (-0.353)
Tangibility -0.267*** -0.035 -0.006 0.010 -0.065*** 0.007 -0.129***
(-4.628) (-0.644) (-0.079) (0.132) (-5.103) (0.603) (-3.792)
Constant 281.853*** 37.237 40.670 6.300 10.383 44.426*** 70.326
(3.816) (0.291) (0.289) (0.168) (0.581) (4.551) (1.072)
Observations 9,056 3,792 3,792 3,792 8,964 5,454 8,318

Year FE Yes Yes Yes Yes Yes Yes Yes
Loan FE Yes Yes Yes Yes Yes Yes Yes
Firm Rating FE Yes Yes Yes Yes Yes Yes Yes
Adjusted R2 0.591 0.821 0.701 0.545 0.768 0.864 0.207
43

Panel B: Study Window [-3, +5]
Leverage Bond BankLoan TermLoan CapEx RND ACQ
(1) (2) (3) (4) (5) (6) (7)
PostIssue*ISLO 5.969*** -7.162*** 11.088*** 3.327* -0.029 -0.140 2.468***

(7.858) (-3.825) (5.317) (2.099) (-0.146) (-0.706) (5.785)
PostIssue 3.705*** -1.677** 2.170** 2.456*** 0.309*** 0.229** 2.573***
(6.551) (-2.150) (2.628) (3.991) (3.122) (2.594) (7.672)
Log (TotalAssets) -6.850*** 4.261*** -1.617 0.853 -1.656*** -3.024*** -4.796***
(-7.675) (3.196) (-1.355) (0.823) (-9.499) (-15.211) (-10.549)
TobinQ 1.437*** -0.872 -0.169 -0.494 1.113*** 0.831*** 0.983***
(4.324) (-1.563) (-0.256) (-1.171) (11.597) (9.075) (4.912)
CashFlow -0.026 -0.050* 0.018 0.002 0.046*** 0.004 0.109***
(-0.962) (-1.816) (0.667) (0.073) (5.146) (0.594) (10.215)
Curr_CashFlow -0.087*** 0.004 -0.039 -0.004 0.048*** -0.066*** 0.019
(-2.754) (0.160) (-0.937) (-0.163) (7.342) (-6.372) (1.388)
Tangibility 0.073*** -0.046 0.042 -0.001 0.036*** 0.010** -0.013
(3.911) (-1.614) (1.536) (-0.040) (7.181) (2.232) (-1.337)
Constant 78.660*** 25.670** 45.632*** 11.229 11.927*** 26.576*** 30.241***
(11.852) (2.625) (4.710) (1.394) (9.305) (16.583) (9.290)
Observations 36,571 18,826 18,826 18,826 36,270 22,305 34,228

Adjusted R2 0.554 0.697 0.617 0.497 0.664 0.843 0.148
44

Table 3. Leveraged Lending Guidance as an Exogenous Shock to Loan Issuances
This table reports the OLS regression results using the 2013 Federal Reserve Leveraged Lending Guidance (LLG) as an
exogenous shock to loan issuances. The study window is [-3, +5], where year 0 refers to the loan issuance year. The dependent
variables are shown in the column titles, and are measured in percentages. Leverage is total debt divided by total assets. Bond
is total bonds divided by total debt. BankLoan is total bank loans divided by total debt. TermLoan is total term loans divided
by total debt. CapEx is capital expenditure divided by total assets. RND is research and development expenditure divided by
total assets. ACQ is acquisition expenditure divided by total assets. PostIssue is a dummy variable that equals 1 if the
observation is after the initial or a matched seasonal loan issuance, and 0 otherwise. ISLODum is a dummy variable that equals
1 for a firm if it issues its first syndicated loan in year 0, and 0 for control firms that issued seasoned loans. LLGDum is a
dummy variable that equals 1 if a loan is issued in 2014 or after, and 0 otherwise. We include the same set of control variables
as in Table 2. Their coefficients are similar and are not reported to save space. Firm rating is the S&P quality ranking in
Compustat. The number of observations varies across regressions due to missing values. Standard errors are double-clustered
at the firm and year levels, and t-statistics are in parentheses. ***, **, and * indicate statistical significance at the 1%, 5%, and
10% levels, respectively.
Leverage Bond BankLoan TermLoan CapExAT RND ACQ

(1) (2) (3) (4) (5) (6) (7)
PostIssue*ISLO*LLGDum 0.692 -9.233* 6.307 11.761* -0.029 1.422** 3.515*

(0.241) (-1.971) (1.111) (1.909) (-0.041) (2.117) (2.001)
PostIssue*ISLO 6.168*** -6.849*** 9.739*** 2.363 0.022 -0.223 2.465***
(7.233) (-3.506) (4.283) (1.504) (0.094) (-1.092) (5.372)
PostIssue*LLGDum 3.754*** -4.098* -4.312* 0.679 -0.782** -0.535* -0.026
(3.020) (-1.777) (-2.001) (0.413) (-2.497) (-1.754) (-0.040)
PostIssue 3.247*** 2.249 6.044*** 4.115*** -0.006 0.666*** 2.051***
(5.283) (1.642) (5.305) (5.094) (-0.052) (6.432) (6.145)
Observations 35,635 18,094 18,094 18,094 35,337 21,675 33,338

Adjusted R2 0.545 0.689 0.606 0.491 0.657 0.841 0.141
45

Table 4. CLO Ownership and Loan Spreads
This table reports the OLS regression results for the impact of CLO ownership on interest rate
spreads of syndicated loans. The dependent variable is Log (LoanSpread), the natural logarithm of
the interest rate spread of a loan facility. CLOOwnership is the total amount of reported primary
market allocations by CLO investors, divided by the total offering amount of a syndicated loan, in
decimals. See the Appendix for other variable definitions. The number of observations varies
across specifications due to missing values in the regressors (including those in the fixed effects).
Industry is defined by the two-digit SIC code from DealScan. Standard errors are double-clustered
at the firm and year-quarter levels. t-statistics are in parentheses. ***, **, and * indicate statistical
significance at the 1%, 5%, and 10% levels, respectively.
Log (LoanSpread)
(1) (2) (3) (4) (5) (6)
CLOOwnership -0.076*** -0.079*** -0.109*** -0.109*** -0.139*** -0.141***

(-2.956) (-3.159) (-3.913) (-4.124) (-4.949) (-5.296)
PublicDum -0.051*** -0.047*** -0.034*** -0.035***
(-5.461) (-4.794) (-4.089) (-3.798)
Log (NumLender) -0.074*** -0.067*** -0.055*** -0.049***
(-8.973) (-8.695) (-7.047) (-6.493)
Log (LoanAmt) -0.065*** -0.066***
(-12.755) (-12.891)
Log (Maturity) 0.121*** 0.117***
(7.074) (6.344)
SecuredDum 0.072*** 0.077***
(4.924) (4.578)
LoanRatings Yes Yes Yes Yes Yes Yes
Constant 6.027*** 6.009*** 6.099*** 6.098*** 6.696*** 6.777***
(58.769) (63.342) (78.500) (79.607) (48.491) (46.450)
Observations 6,135 6,084 6,135 6,084 6,135 6,084

Year FE Yes Yes Yes Yes Yes Yes
Industry FE Yes Yes Yes Yes Yes Yes
Loan Purpose FE Yes Yes Yes Yes Yes Yes
Lead Lender FE No Yes No Yes No Yes
Adjusted R2 0.629 0.646 0.649 0.661 0.668 0.679
46

Table 5. Number of CLO Funds/Managers and Loan Spreads
This table reports OLS regression results for the impact of the number of CLO funds or managers
investing in a loan on the interest rate spread of the loan. The dependent variable is Log
(LoanSpread), the natural logarithm of the interest rate spread of a loan facility. Log
(NumCLOFund) is the natural logarithm of the total number of CLO funds that invest in a
syndicated loan upon issuance. Log (NumCLOManager) is the natural logarithm of the total
number of CLO managers that invest in a syndicated loan upon issuance. A CLO manager typically
manages multiple funds simultaneously. See the Appendix for other variable definitions. Industry
is defined by the two-digit SIC code from DealScan. Standard errors are double-clustered at the
firm and year-quarter levels. t-statistics are in parentheses. ***, **, and * indicate statistical
significance at the 1%, 5%, and 10% levels, respectively.
Log (LoanSpread)
(1) (2) (3) (4) (5) (6)
Log (NumCLOFund) -0.021*** -0.020*** -0.011***

(-5.796) (-5.921) (-3.328)
Log (NumCLOManager) -0.041*** -0.038*** -0.029***
(-8.109) (-8.307) (-6.450)
PublicDum -0.046*** -0.035*** -0.043*** -0.034***
(-4.771) (-3.888) (-4.625) (-3.785)
Log (NumLender) -0.064*** -0.048*** -0.063*** -0.050***
(-8.551) (-6.405) (-8.468) (-6.560)
Log (LoanAmt) -0.056*** -0.049***
(-10.318) (-8.859)
Log (Maturity) 0.130*** 0.138***
(6.859) (7.317)
SecuredDum 0.079*** 0.085***
(4.691) (4.997)
LoanRatings Yes Yes Yes Yes Yes Yes
Constant 6.028*** 6.104*** 6.524*** 6.016*** 6.091*** 6.343***
(67.044) (81.974) (41.914) (65.190) (79.137) (39.633)
Observations 6,084 6,084 6,084 6,084 6,084 6,084

Industry FE Yes Yes Yes Yes Yes Yes
Loan Purpose FE Yes Yes Yes Yes Yes Yes
Lead Lender FE Yes Yes Yes Yes Yes Yes
Adjusted R2 0.649 0.663 0.678 0.654 0.667 0.680
47

Table 6. Triple-A Ownership and Loan Spreads
This table reports OLS regression results for the impact of the triple-A portion of CLO ownership
on loan spreads. The dependent variable is Log (LoanSpread), the natural logarithm of the interest
rate spread of a loan facility. TripleAOwnership is the triple-A portion of a loan’s CLO ownership.
A CLO fund’s triple-A portion of its ownership in a loan (its primary market allocations as defined
in Figure 1) is its reported holdings in the loan times the percentage of its triple-A tranche of its
right-hand side of the balance sheet. The summation of the triple-A portions of all CLO funds in a
syndicated loan is the loan’s triple-A CLO ownership. We measure triple-A ownership in decimals
in the regressions. See the Appendix for other variable definitions. Industry is defined by the two-
digit SIC code from DealScan. Standard errors are double-clustered at the firm and year-quarter
levels. t-statistics are in parentheses. ***, **, and * indicate statistical significance at the 1%, 5%,
and 10% levels, respectively.
Log (LoanSpread)
(1) (2) (3)
TripleAOwnership -0.144*** -0.196*** -0.249***

(-3.169) (-4.140) (-5.435)
PublicDum -0.046*** -0.033***
(-4.748) (-3.732)
Log (NumLender) -0.067*** -0.049***
(-8.674) (-6.537)
Log (LoanAmt) -0.065***
(-12.736)
Log (Maturity) 0.117***
(6.452)
SecuredDum 0.084***
(5.210)
LoanRatings Yes Yes Yes
Constant 6.009*** 6.097*** 6.763***
(61.805) (76.829) (46.061)
Observations 5,915 5,915 5,915

Year FE Yes Yes Yes
Industry FE Yes Yes Yes
Loan Purpose FE Yes Yes Yes
Lead Lender FE Yes Yes Yes
Adjusted R2 0.644 0.659 0.677
48

Table 7. Differential Impacts of CLO Ownership across Credit Rating Categories
This table reports OLS regression results on the impact of CLO ownerships on loan spreads across
different credit rating categories. The dependent variable is Log (LoanSpread), the natural
logarithm of the interest rate spread of a loan facility. RateLow is a dummy variable that equals 1
if the Moody’s rating of a loan is below B1 (inclusive) or it does not have a rating, and 0 otherwise.
CLOOwnership is the total amount of primary allocations by CLO investors divided by the total
offering amount of a syndicated loan, in decimals. TripleAOwnership is the summation of the
triple-A portion of each CLO fund’s ownership in a loan (in decimals). We include the same
control variables as in Tables 4 and 6, and their coefficients are similar. We do not report them
here to save space. The number of observations varies across specifications due to missing values
in the regressors (including those in the fixed effects). Industry is defined by the two-digit SIC
code from DealScan. Standard errors are double-clustered at the firm and year-quarter levels. t-
statistics are in parentheses. ***, **, and * indicate statistical significance at the 1%, 5%, and 10%
levels, respectively.
Log (LoanSpread)
CLO Ownership Triple-A Ownership
(1) (2)
RateLow*CLOOwnership -0.192***
(-5.577)
RateLow*TripleAOwnership -0.302***
(-4.864)
CLOOwnership -0.044
(-1.565)
TripleAOwnership -0.096*
(-1.784)
RateLow -0.355*** -0.369***
(-2.819) (-2.927)
Observations 6,084 5,915

Year FE Yes Yes
Industry FE Yes Yes
Loan Purpose FE Yes Yes
Lead Lender FE Yes Yes
Adjusted R2 0.681 0.679
49

Table 8. Information Asymmetry and Financial Constraints
This table reports OLS regression results for how information asymmetry affects the impact of
CLO ownership on loan spreads. The dependent variable is Log (LoanSpread), the natural
logarithm of the interest rate spread of a loan facility. In Specifications (1) and (3), Opacity equals
1 if the borrower is a private firm, and 0 otherwise. In Specifications (2) and (4), Opacity equals 1
if the borrower has above-median analyst forecast dispersion on earnings per share (EPS) in the
year before the loan is syndicated, and 0 otherwise. CLOOwnership is the total primary market
allocations by all CLO investors divided by the total offering amount of a syndicated loan, in
decimals. TripleAOwnership is the summation of the triple-A portion of each CLO fund’s
ownership in a loan (in decimals). Except for PublicDum, which is either replaced by Opacity
(Columns (1) and (2)) or is not needed for the sample of public firms (Columns (3) and (4)), we
include the same control variables as in Tables 4 and 6. Their coefficients are similar and are not
reported to save space. The number of observations varies across specifications due to missing
values in the regressors. Industry is defined by the two-digit SIC code from DealScan. Standard
errors are double-clustered at the firm and year-quarter levels. t-statistics are in parentheses. ***,
**, and * indicate statistical significance at the 1%, 5%, and 10% levels, respectively.
Log (LoanSpread)
Private- Analyst Forecast Private- Analyst Forecast
Public Dispersion Public Dispersion
(1) (2) (3) (4)
Opacity*CLOOwnership -0.085** -0.215**

(-2.186) (-2.151)
CLOOwnership -0.089** 0.082
(-2.382) (1.137)
Opacity*TripleAOwnership -0.123* -0.386**
(-1.861) (-2.327)
TripleAOwnership -0.177*** 0.124
(-2.882) (1.072)
Opacity 0.050*** 0.065** 0.047*** 0.076**
(4.020) (2.356) (3.778) (2.624)
Observations 6,084 797 5,915 779

Year FE Yes Yes Yes Yes
Industry FE Yes Yes Yes Yes
Loan Purpose FE Yes Yes Yes Yes
Lead Lender FE Yes Yes Yes Yes
Adjusted R2 0.680 0.655 0.678 0.648
50

Table 9. Overall Market Demand vs. Specialness of CLOs
This table reports OLS regression results for the impact of CLO ownership on loan spreads,
controlling for the potential impact of overall market demand. The dependent variable is Log
(LoanSpread), the natural logarithm of the interest rate spread of a loan facility. CLOOwnership
is total primary market allocations by CLO investors, divided by the total offering amount of a
syndicated loan. Log (1+DaysonMarket) is the logarithm of 1 plus the number of days between
the launch date and facility start date of a loan. AvgCLOOwnership is average CLO ownership
across all CLO investors in a loan. AvgTripleAOwnership is average triple-A ownership across all
CLO investors in a loan. All CLO ownership measures are in decimals. We include the same
control variables as in Tables 4 and 6, and their coefficients are similar. They are not reported here
to save space. The number of observations varies across specifications due to missing values in
the regressors (including those in the fixed effects). Industry is defined by the two-digit SIC code
from DealScan. Standard errors are double-clustered at the firm and year-quarter levels. t-statistics
are in parentheses. ***, **, and * indicate statistical significance at the 1%, 5%, and 10% levels,
respectively.
Log (LoanSpread)
(1) (2) (3) (4)
CLOOwnership -0.214***
(-4.916)
TripleAOwnership -0.367***
(-5.030)
Log (1+DaysonMarket) 0.061*** 0.061***
(4.427) (4.461)
AvgCLOOwnership -0.552***
(-3.247)
AvgTripleAOwnership -1.119***
(-3.732)
Observations 2,344 2,289 6,084 5,915

Loan Purpose FE Yes Yes Yes Yes
Adjusted R2 0.682 0.678 0.678 0.676
51

Table 10. CLO ownership and Corporate Investments
This table reports the results for the impact of CLO ownership on corporate investments. For a
public firm in Compustat that issued a syndicated loan between 2003 and 2018, we include in the
sample the firm-year information for a [-3, +5] window, with year 0 being the loan issuance year.
Panel A reports summary statistics for the variables on each firm-year observation used in the
regressions. Panel B reports the OLS regression results. The dependent variable is CapEx, total
capital expenditure (CAPX in Compustat items) in year t scaled by total assets in year t-1.
PostIssue is a dummy variable that equals 1 if the observation is in year 0 and afterward, and 0
otherwise. CLOOwnership is total primary market allocations by CLO investors, divided by the
total offering amount of a syndicated loan in year 0, in decimals. When a firm has multiple loans
in year 0 (loan issuance year), we use average CLO ownership across the syndicated loans issued
by the same firm in the year in Columns (1) and (2). In Columns (3) and (4), we use the maximum
CLO ownership across the syndicated loans issued in the year. In Columns (5) and (6),
CLOOwnership is CLO ownership in the last syndicated loan issued by the firm in the year. See
the Appendix for other variable definitions. All independent variables are lagged one year, except
for Curr_CashFlow, which is contemporaneous with CapEx. Firm rating is the S&P quality
ranking in Compustat. The number of observations varies due to missing values in the variables.
Standard errors are double-clustered at the firm and year levels. t-statistics are in parentheses. ***,
**, and * indicate statistical significance at the 1%, 5%, and 10% levels, respectively.
52

Panel A: Summary Statistics
CapEx (%) 9,666 4.919 6.288 1.732 3.138 5.656
TotalAssets ($Million) 9,751 6,789.000 16,439.000 951.000 2,197.000 5,524.000
Log (TotalAssets) 9,751 7.789 1.341 6.858 7.695 8.617
TobinQ 7,781 1.633 0.739 1.170 1.436 1.832
LagCashFlow (%) 9,260 7.134 10.040 3.675 7.108 11.230
CashFlow (%) 9,686 7.113 9.843 3.731 7.109 11.170
Panel B: Regressions
CapEx
Mean Maximum Last
(1) (2) (3) (4) (5) (6)
PostIssue * CLOOwnership 1.586** 1.692** 1.446*** 1.496** 1.288** 1.356**

(2.709) (2.994) (3.154) (2.927) (2.517) (2.543)
PostIssue -0.448** -0.220 -0.451** -0.215 -0.404** -0.171
(-2.446) (-1.126) (-2.674) (-1.111) (-2.420) (-0.957)
Log (TotalAssets) -1.150*** -1.151*** -1.152***
(-4.437) (-4.440) (-4.457)
TobinQ 1.450*** 1.448*** 1.449***
(4.384) (4.377) (4.379)
CashFlow 0.033*** 0.033*** 0.033***
(3.455) (3.450) (3.458)
Curr_CashFlow 0.045*** 0.045*** 0.045***
(3.363) (3.358) (3.349)
Constant 4.689*** 10.789*** 4.688*** 10.798*** 4.683*** 10.802***
(14.304) (5.293) (14.300) (5.295) (14.342) (5.299)
Observations 9,553 7,569 9,553 7,569 9,553 7,569

Loan FE Yes Yes Yes Yes Yes Yes
Firm Rating FE Yes Yes Yes Yes Yes Yes
Adjusted R2 0.721 0.787 0.721 0.787 0.721 0.787
53

Figure 3. Dynamic Impact of CLO Ownership on Capital Expenditure
This figure plots the coefficient estimates of 𝛽𝑛 on the interaction terms CLOOwnership * Window
(n) of the following specification:
𝐶𝑎𝑝𝐸𝑥 = 𝛼 + ∑ 𝛽𝑛 𝐶𝐿𝑂𝑂𝑤𝑛𝑒𝑟𝑠ℎ𝑖𝑝 ∗ 𝑊𝑖𝑛𝑑𝑜𝑤(𝑛) + 𝜆𝐶𝐿𝑂𝑂𝑤𝑛𝑒𝑟𝑠ℎ𝑖𝑝

−3≤𝑛≤5
+∑ 𝛾𝑛 𝑊𝑖𝑛𝑑𝑜𝑤(𝑛) + 𝜂𝐶𝑜𝑛𝑡𝑟𝑜𝑙𝑠
−3≤𝑛≤5
+ 𝐿𝑜𝑎𝑛, 𝐹𝑖𝑟𝑚 𝑅𝑎𝑡𝑖𝑛𝑔, 𝑎𝑛𝑑 𝐶𝑜𝑚𝑝𝑢𝑠𝑡𝑎𝑡 𝑅𝑒𝑝𝑜𝑟𝑡 𝑌𝑒𝑎𝑟 𝐹𝑖𝑥𝑒𝑑 𝐸𝑓𝑓𝑒𝑐𝑡𝑠 + 𝜖
Note that Window (-3) is the base group, and is omitted in the above regressions. The sample here
is the same as that in Table 10. The horizontal axis indicates the year relative to loan issuance date,
i.e., Window (n). The vertical axis indicates the value of point estimates of 𝛽𝑛 , i.e., the coefficients
on the interaction terms CLOOwnership * Window (n). The markers show the coefficient estimates.
The capped vertical line shows the upper and lower bounds of 95% confidence intervals.
54

Table 11. Robustness Tests
This table reports the OLS regression results for robustness tests. In Specification (1), the
dependent variable is LoanSpread, the (non-logged) interest rate spread of a loan in bps. The
dependent variables in all other specifications are Log (LoanSpread), the natural logarithm of the
interest rate spread of a loan. In Specification (2), we control for firm fixed effects instead of lead
bank fixed effects. In Specification (3), we control for both firm and lead bank fixed effects. We
double-cluster standard errors at the firm and year levels in Specification (4). Specification (5)
excludes loans issued during the financial crisis (from July 2007 to April 2009). Specification (6)
excludes repriced loans. In Specification (7), we control for additional firm characteristics.
PublicDum is omitted because only public firms have available financial variables.
CLOOwnership is total primary market allocations by CLO investors, divided by total offering
amount of a syndicated loan, in decimals. See the Appendix for other variable definitions. Standard
errors are double-clustered at the firm and year-quarter levels, except for Specification (4), where
we double-cluster at the firm and lead lender levels. t-statistics are in parentheses. ***, **, and *
indicate statistical significance at the 1%, 5%, and 10% levels, respectively.
55

LoanSpread Log (LoanSpread)
Double-
Clustering Exclude Additional
Firm&Lead Firm&Lead Exclude Repriced Firm
Firm FE Lender FE Lender Crisis Loans Controls
(1) (2) (3) (4) (5) (6) (7)
CLOOwnership -99.699*** -0.141*** -0.133*** -0.141*** -0.143*** -0.197*** -0.085*
(-7.962) (-5.350) (-5.087) (-4.583) (-5.293) (-7.223) (-1.930)
PublicDum -12.466*** -0.026 -0.019 -0.035*** -0.036*** -0.038***
(-3.184) (-1.619) (-1.144) (-3.360) (-3.887) (-3.714)
Log (NumLender) -18.385*** -0.036*** -0.030*** -0.049*** -0.047*** -0.067*** -0.056***
(-5.449) (-4.853) (-4.129) (-8.766) (-6.200) (-8.159) (-4.862)
Log (LoanAmt) -32.598*** -0.073*** -0.070*** -0.066*** -0.067*** -0.065*** -0.049***
(-14.128) (-9.637) (-9.769) (-10.919) (-12.776) (-10.458) (-6.160)
Log (Maturity) 45.717*** 0.257*** 0.257*** 0.117*** 0.120*** 0.097*** 0.173***
(5.841) (10.293) (10.071) (6.839) (6.446) (4.120) (6.607)
SecuredDum 36.154*** 0.076*** 0.071*** 0.077*** 0.081*** 0.085*** 0.092**
(4.980) (2.825) (2.711) (4.740) (4.748) (4.828) (2.366)
Log (TotalAssets) -0.006
(-1.527)
Leverage -0.044***
(-3.181)
LagCashFlow -0.178***
(-3.702)
LoanRatings Yes Yes Yes Yes Yes Yes Yes
Constant 867.283*** 6.350*** 6.672*** 6.777*** 6.793*** 6.907*** 6.271***
(14.402) (38.538) (33.726) (46.342) (46.337) (40.977) (33.584)
Observations 6,084 4,954 4,954 6,084 5,889 4,887 2,342
Industry FE Yes Yes Yes Yes Yes Yes Yes
Loan Purpose FE Yes Yes Yes Yes Yes Yes Yes
Lead Lender FE Yes No Yes Yes Yes Yes Yes
Firm FE No Yes Yes No No No No
Adjusted R2 0.641 0.773 0.780 0.679 0.686 0.668 0.680
56

Table 12. 2SLS Regressions with IVs Based on CLO ID Tests
This table reports two-stage least squares (2SLS) regression results to address the endogeneity
concern of CLO ownership. In Specifications (1) and (3), the dependent variable is CLOOwnership,
which is the total primary market allocations of a loan held by CLO investors, divided by the total
offering amount of the loan, in decimals. PredCLOOwnership is the predicted value of CLO
ownership in the first-stage regressions. The instrumental variable (IV) in Specification (1) is
IDTestFailDum, a dummy variable that equals 1 if any of the CLOs investing in the loan failed the
interest diversion (ID) test over the last three months prior to the issuance date of the current loan.
The IV in Specification (3) is IDTestFailRatio, a continuous variable that equals the number of
CLOs investing in the loan that failed the ID tests in the last three months divided by the total
number of CLOs investing in the loan. The dependent variable in Specifications (2) and (4) is Log
(LoanSpread), which is the natural logarithm of the interest rate spread. See the Appendix for more
variable definitions. Standard errors are double-clustered at the firm and year-quarter levels. t-
statistics are in parentheses. ***, **, and * indicate statistical significance at the 1%, 5%, and 10%
levels, respectively.
57

First-Stage Second-Stage First-Stage Second-Stage
CLOOwnership Log (LoanSpread) CLOOwnership Log (LoanSpread)
(1) (2) (3) (4)
IDTestFailDum 0.113***
(17.952)
IDTestFailRatio 0.330***
(4.480)
PredCLOOwnership -0.378*** -1.874***
(-3.796) (-3.159)
PublicDum 0.008 -0.031*** 0.009* -0.017
(1.651) (-3.308) (1.878) (-1.066)
Log (NumLender) -0.014*** -0.048*** -0.016*** -0.073***
(-4.755) (-6.191) (-5.083) (-5.263)
Log (LoanAmt) -0.039*** -0.073*** -0.027*** -0.113***
(-10.074) (-12.785) (-7.769) (-6.098)
Log (Maturity) -0.045** 0.110*** -0.038** 0.054
(-2.596) (6.086) (-2.266) (1.634)
SecuredDum 0.009 0.094*** 0.014 0.114***
(0.847) (6.499) (1.207) (4.451)
LoanRatings Yes Yes Yes Yes
Constant 1.140*** 7.261*** 0.890*** 8.505***
(11.471) (41.862) (8.955) (16.094)
Observations 5,252 5,252 5,252 5,252

Deal Purpose FE Yes Yes Yes Yes
Adjusted R2 0.335 0.668 0.278 0.217
58

Appendix: Variable Definitions
Variable Definition
ISLODum Dummy variable indicating whether a firm has issued its first syndicated loan.
Leverage (%) Total debt in year t divided by total assets in year t-1.
Bond (%) Total bonds in year t divided by total debt in year t.
BankLoan (%) Total bank loans in year t divided by total debt in year t.
CapEx (%) Capital expenditure in year t divided by total assets in year t-1.
RND (%) R&D expenditure in year t divided by total assets in year t-1.
ACQ (%) Acquisition expenditure in year t divided by total assets in year t-1.
TotalAssets ($Million) Total assets from Compustat.
Log (TotalAssets) Natural logarithm value of total assets.
TobinQ (Ratio) Market value of equity plus total assets minus book value of equity, divided by
total assets.
CashFlow (%) One-year lagged value of income before extraordinary items, plus depreciation
and amortization divided by total assets.
Curr_CashFlow (%) Current value of income before extraordinary items, plus depreciation and
amortization divided by total assets.
Tangibility Property, plant, and equipment divided by total assets.
LLGDum Dummy variable that equals 1 if a loan is issued after 2014 (included), and 0
otherwise. This dummy variable is used to capture the period after the Leveraged
Lending Guidance (LLG) issued by the Federal Reserve in June 2013.
LoanSpread (bps) All-in-drawn spread from DealScan, which is the difference between the loan
interest rate and the twelve-month London Interbank Offered Rate (LIBOR) in
basis points.
Log (LoanSpread) Natural logarithm of LoanSpread.
CLOOwnership (%) Total amount held by CLO investors (primary allocations as defined in Figure 1),
divided by the total offering amount of a syndicated loan.
AvgCLOOwnership (%) Average CLO ownership across all CLO investors in a loan.
NumCLOFund Total number of CLO funds in a syndicated loan based on primary allocations.
Log (NumCLOFund) Natural logarithm value of the total number of CLO funds.
NumCLOManager Total number of CLO managers in a syndicated loan based on primary
allocations. A CLO manager typically manages multiple CLO funds or deals at
the same time.
Log (NumCLOManager) Natural logarithm value of the total number of CLO managers in a syndicated
loan upon issuance.
TripleAOwnership (%) Summation of the triple-A portion of each CLO’s loan ownership (primary
allocations), where, for a CLO’s ownership, it is the product of the triple-A rated
tranche portion of its balance sheet times its raw CLO ownership in the loan.
DaysOnMarket Proxy for primary market demand of syndicated loans. It is the number of days
between launch date and facility start date of a loan.
Log (1+DaysonMarket) Logarithm value of 1 plus the number of days between the launch date and facility
start date of a loan.
59

Appendix continued:
Variable Definition
LoanAmt ($Million) Offering amount of a loan facility in $ millions.
Log (LoanAmt) Natural logarithm of loan offering amount.
Maturity (Months) Maturity of a loan facility in months.
Log (Maturity) Natural logarithm of loan maturity.
PublicDum Dummy variable indicating whether a firm is public.
NumLender Total number of lenders in a loan syndicate.
Log (NumLender) Natural logarithm of the total number of lenders in a loan.
SecuredDum Dummy variable that equals 1 if a loan is secured, and 0 if not.
Rating Credit rating of a loan. We take the average when there are multiple ratings
(different CLOs can have different ratings for the same loan). We denote Aaa,
Aa1, … as 1, 2, and so on, and 25 if a loan is not rated.
RatingLetter Credit rating of a loan in letters.
Analyst Forecast Standard deviation of analysts’ estimations on a firm's FY1 earnings per share
Dispersion (EPSSTD) (EPS). We take the average across the monthly standard deviations for a loan
issuance year.
IDTestFailDum Dummy variable that equals 1 if any of the CLOs investing in a loan has failed
the ID test in the past three months, and 0 otherwise. An ID test requires that the
value of a CLO’s loan portfolio remains above a predetermined threshold at
predetermined measurement dates. A CLO is required to suspend its payment to
equity investors and use the funds to purchase more loans if it fails an ID test.
IDTestFailRatio Number of CLOs that have failed the ID test in the past three months divided by
the number of CLOs investing in a loan.
60

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Financial Innovations and Corporate Policies: Loan Syndication and

Donghang Zhang and Yafei Zhang*

structure, Capital expenditure, Financial innovation

JEL classification: G12, G14, G21, G23, G32

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2. Sample Construction and Summary Statistics

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2.2. Sample of Loans with CLO Ownership Information

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The Creditflux CLO-i platform (https://cloi.creditflux.com) provides comprehensive

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2.3. Measures of CLO Ownership

We calculate the CLO ownership of a loan facility as follows:

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∑𝐽𝑗=1 𝑇𝑟𝑖𝑝𝑙𝑒𝐴𝑃𝑜𝑟𝑡𝑖𝑜𝑛𝑗 ∗ 𝐶𝐿𝑂𝐴𝑚𝑡𝑖𝑗

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2.4. Summary Statistics

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4. CLO Ownership, Loan Spreads, and Corporate Investments

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𝐿𝑜𝑔 (𝐿𝑜𝑎𝑛𝑆𝑝𝑟𝑒𝑎𝑑) = 𝛼 + 𝛽𝐶𝐿𝑂𝑂𝑤𝑛𝑒𝑟𝑠ℎ𝑖𝑝 + 𝛾𝐶𝑜𝑛𝑡𝑟𝑜𝑙𝑠 + 𝜇𝐿𝑜𝑎𝑛 𝑅𝑎𝑡𝑖𝑛𝑔 𝐷𝑢𝑚𝑚𝑖𝑒𝑠 +

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4.2. Number of CLOs and Loan Spreads

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4.3. Triple-A Tranching and Loan Spreads

Securitization can mitigate market frictions by intermediating firms with speculative-grade

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4.4. Cross-Sectional Variations of CLO Effects

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4.5. CLO Effect, or Overall Market Demand?

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4.6. CLO Ownership and Corporate Investments

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5. Robustness Tests and Endogeneity Issues

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5.2. Addressing Potential Endogeneity Issues

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20.0 756 739 800

Number of Loans CLO Ownership Number of CLO Managers

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PostIssueISLO 8.009 -4.798* 7.367* 2.328 0.623* 0.498 4.261*

PostIssueISLO 5.969 -7.162* 11.088*** 3.327* -0.029 -0.140 2.468***

PostIssueISLOLLGDum 0.692 -9.233* 6.307 11.761* -0.029 1.422** 3.515*

CLOOwnership -0.076* -0.079* -0.109* -0.109* -0.139* -0.141*

Log (NumCLOFund) -0.021* -0.020* -0.011***

TripleAOwnership -0.144* -0.196* -0.249***

Opacity*CLOOwnership -0.085 -0.215

PostIssue * CLOOwnership 1.586 1.692 1.446* 1.496 1.288 1.356