Finance and Economics Discussion Series (FEDS)
March 2024
How Private Equity Fuels Non-Bank Lending
Sharjil Haque, Simon Mayer, and Teng Wang
Abstract:
We show how private equity (PE) buyouts fuel loan sales and non-bank participation in the U.S. syndicated loan market. Combining loan-level data from the Shared National Credit register with buyout deals from Pitchbook, we find that PE-backed loans feature lower bank monitoring, lower loan shares retained by the lead bank, and more loan sales to non-bank financial intermediaries. For PE-backed loans, the sponsor’s reputation and the strength of its relationship with the lead bank further reduce the lead bank’s retained share and monitoring. Our results suggest that PE sponsor engagement substitutes for bank monitoring, allowing banks to retain less skin-in-the game in the loans they originate and to sell greater loan shares to non-banks.
Keywords: Syndicated Loans, Private Equity, LBO, Bank Monitoring, CLO, Securitization, Loan Sales
DOI: https://doi.org/10.17016/FEDS.2024.015
PDF: Full Paper
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