Gregory P Nini

Over the last two decades, the leveraged loan market has grown to a size comparable to the market for high-yield corporate bonds, creating a market for “leveraged finance” that includes about $3 trillion in outstanding debt. For issuers and investors in these markets, high-yield bonds and leveraged loans offer similar but still distinct products to link firms with the providers of debt capital. Because issuers are risky and relatively large, the market is distinct from the investment-grade bond and traditional bank loan markets that serve either very safe borrowers or much smaller borrowers. This distinction has shaped the development of the primary markets, secondary markets, investors, and contracts that govern the relationships between debtors and creditors. We introduce the structure of these markets and review existing academic literature that touches on them and suggest areas that deserve additional research

The Farm Credit System (FCS) is an important source of financing for many rural communities in the United States. As a government-sponsored enterprise (GSE), the FCS has a mandate to provide credit to eligible borrowers. This paper investigates the effect of FCS participation on the supply and pricing of credit to eligible borrowers in the syndicated loan market. We find significant discounts to interest rates on FCS term loans, likely because GSE participation displaces more opportunistic lenders in the syndicate. We further find that FCS credit provision increased during both the Global Financial Crisis of 2007-2009 and recent COVID-19 crash

Using a novel measure of firms’ expected revenue shortfall at the onset of the pandemic, we study the cross sectional differences in how firms fund cash flow shortfalls. We document a U-shaped pattern, where external capital flows to firms with the largest positive and negative expected cash flow shocks. Firms traditionally considered “financially constrained” raise more - not less - capital (relative to assets), on the margin by issuing equity, while unconstrained firms rely on debt markets. Our findings suggest that external equity plays a crucial role as a financing source for smaller, younger, and otherwise riskier firms in times of stress

I examine the implications of the sharp contraction of loan supply from nonbank institutional investors from 2008 through 2010 by comparing firms with and without institutional loans at the onset of the financial crisis. Despite large subsequent reductions in institutional loan balances, there is no evidence that firms with exposure to the supply shock subsequently experienced worse firm performance or lower investment. Instead, there is strong evidence that firms fully offset the fall in institutional loans by issuing additional bank debt and, primarily, corporate bonds. The results show that large borrowers can easily substitute between different types of capital and that institutional loans do not facilitate excessive corporate borrowing

There is considerable evidence that the growth of non-bank institutional investors, primarily collateralized loan obligations, in the market for bank loans provided a significant increase in the supply of credit. Firms accessing the market for institutional term loans invested more in capital expenditures and working capital than otherwise similar firms. Since institutional investors have concentrated in lending to borrowers with speculative-grade debt ratings, the borrower's credit rating provides a natural instrument to show that borrowing from a non-bank has had a causal impact on firm investment. Institutional term loans have permitted borrowers to increase their leverage and strengthen their balance sheets by lengthening the maturity of their debt, further confirming that non-bank investors have increased the supply of credit. In response to the supply shock, there has been considerable growth in number of firms with speculative-grade ratings, driven primarily by firms acquiring new ratings to gain access to the institutional market. This result suggests that banks no longer have a comparative advantage in funding senior, secured debt that requires extensive monitoring of covenants. However, commercial banks remain the unique provider of revolving lines of credit, suggesting that banks comparative advantage rests in the provision of liquidity in the form of lines of credit