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Corporate Loan Securitization and the Standardization of Financial Covenants


Speaker:Florin Vasvari, London Business School
Date: Wednesday 3 June 2015
Time: 14:00
Location: Constatine Leventis

Further details

Using textual analysis we capture the extent of covenant standardization in syndicated


loan contracts by measuring the similarity of financial covenant definitions. We


document that securitization of syndicated loans by Collateralized Loan Obligations


(CLOs) is associated with greater covenant standardization. Consistent with CLO


stakeholders’ needs to decrease information acquisition and processing costs through


standardization, we find that financial covenant similarity reduces information asymmetry


about covenant terms between debt market participants. Specifically, covenant similarity


is associated with an increase in the liquidity of securitized loans in the primary and


secondary loan markets. In addition, we find that covenant similarity is associated with


greater agreement between credit rating agencies.



Keywords: Securitization, Financial Covenants, Syndicated Loans, Standardization

JEL Classifications: G17, G21, G32, M41