Finance Seminar（2024 - 03）

Topic:   How Expensive Are Secured Bank Loans?

Speaker: Jing Lu, University of Florida

Time: Monday, January 15, 10:00-11:30 a.m. Beijing time

Location: Room 217, Guanghua Building 2

Abstract  

Do differences in average recovery rates explain the differences in credit spreads between bank loans and bonds? I first find that the heterogeneity in capital structure confounds the comparison -- controlling for priority positions (seniority), actual recovery rates are not significantly different between loans and bonds, suggesting bank lenders are not special in recovering values due to monitoring. Second, using ex-ante measures of expected recoveries based on secondary market prices and estimates of loss given default (LGD) by rating agencies, the premium in loan spreads compared to bond-equivalent spreads is reduced by about one-third. Third, I show that dominant banks in the loan origination market capture lower premiums than other banks when selling loans in the secondary market, ruling out a bank market power explanation. Overall, my findings shed light on the credit risks of secured loans as loans and bonds have become more similar over time.

Bio

Jing is a finance Job Market Candidate at the Warrington College of Business, University of Florida, under the supervision of Christopher James and Jay Ritter. Her research interests are in empirical corporate finance, including banking, fixed income and mutual funds. Her Job Market Paper, How Expensive Are Secured Loans, studies whether recovery rates can explain the price differences between bank loans and bonds. Her working paper, Institutional Synergies and the Fragility of Loan Funds (R&R at the RFS), studies how mutual funds and collateralized loan obligations (CLOs) interact in the loan market. Jing received a B.S. in Mathematics from Nankai University (2012) and an M.A. in Applied Economics from Georgetown University (2013). Prior to joining the Ph.D. program at UF, she worked in International Monetary Fund and the World Bank.

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