Leveraged loans: is high leverage risk priced in?
by David P. Newton; Steven Ongena; Ru Xie; Binru Zhao
International Journal of Banking, Accounting and Finance (IJBAAF), Vol. 15, No. 1/2, 2025

Abstract: We investigate the impact of the 2014 Interagency Clarification on the leverage risk premium for bank- and non-bank-originated loans. Using a novel dataset from 2011 to 2019, we show that leveraged loan spreads have declined rapidly for non-bank facilities relative to bank facilities since the introduction of the 2014 Interagency Clarification. The decline in leveraged loan spreads is significant for highly leveraged borrowers, especially when term loans are involved. We further demonstrate that a higher degree of information asymmetry, driven by an increase in covenant-lite loan issuance and weaker investor protection, is strongly associated with a narrower leverage risk premium.

Online publication date: Mon, 02-Jun-2025

The full text of this article is only available to individual subscribers or to users at subscribing institutions.

 
Existing subscribers:
Go to Inderscience Online Journals to access the Full Text of this article.

Pay per view:
If you are not a subscriber and you just want to read the full contents of this article, buy online access here.

Complimentary Subscribers, Editors or Members of the Editorial Board of the International Journal of Banking, Accounting and Finance (IJBAAF):
Login with your Inderscience username and password:

Username:        Password:          Forgotten your password?

Want to subscribe?
A subscription gives you complete access to all articles in the current issue, as well as to all articles in the previous three years (where applicable). See our Orders page to subscribe.

If you still need assistance, please email subs@inderscience.com