1 THE ROLE OF BORROWER STRATEGIC DEFAULT PROPENSITY ON THE STRUCTURE AND PRICING OF SYNDICATED LOANS

A considerable amount of research has referred to the concept of strategic default in the context of the syndicate structure and pricing of various loan instruments. Despite such references and imputed effects in the syndicated loan market, no study to our knowledge has specifically quantified the strategic default variable. Our study first identifies a latent variable entitled the propensity to strategically default. A latent variable is a hypothesized and unobserved concept that can only be approximated by observable or measured variables. We then combine this propensity to strategically default variable with a sample of loans that experience an amendment favorable to the borrower. Our identification of a strategic default is the combination of the propensity latent variable and a borrower-favorable amendment. If our measure of strategic default is legitimate and the loan market responds in a manner prescribed by previous studies, we should observe subsequent syndicate structure to be less concentrated, the loan having higher credit spreads and shorter weighted average deal maturities. The status of the paper is as follows. The sample for the study is complete. I