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Multiple Lenders and Corporate Distress: Evidence on Debt Restructuring

Antje Brunner and Jan Pieter Krahnen
The Review of Economic Studies
Vol. 75, No. 2 (Apr., 2008), pp. 415-442
Published by: Oxford University Press
Stable URL: http://www.jstor.org/stable/20185038
Page Count: 28
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Multiple Lenders and Corporate Distress: Evidence on Debt Restructuring
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Abstract

Multiple banking is a common characteristic of the corporate lending, particularly of medium-sized and large firms. However, if the firms are facing distress, multiple lenders may have serious coordination problems, as has been argued in the theoretical literature. In this paper we analyse the problems of multiple banking in borrower distress empirically. We rely on a unique panel data set that includes detailed creditfile information on distressed lending relationships in Germany. In particular, it includes information on "bank pools", a legal institution aimed at coordinating lender interests in distress. We find that the existence of small pools increases the probability of workout success and that this effect reverses when pools become large. We identify major determinants of pool formation, in particular the number of banks, the distribution of lending among banks, and the severity of the distress.

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