Topic
Tranche
About: Tranche is a research topic. Over the lifetime, 362 publications have been published within this topic receiving 6393 citations. The topic is also known as: A notes.
Papers published on a yearly basis
Papers
TL;DR: Using a sample of 495 project finance loan tranches (worth $151 billion), this work examines the relation between legal risk and debt ownership structure and finds that lenders create smaller and more concentrated syndicates to facilitate monitoring and low cost contracting.
Abstract: This paper examines the relation between legal risk - defined as the strength and enforcement of creditors' rights - and debt ownership concentration to understand the various governance roles played by banks as large creditors. Using a sample of 495 project finance loan tranches (worth $151 billion) to borrowers in 61 different countries, we document high absolute levels of debt ownership concentration: the largest single bank holds 20.3% while the top five banks collectively hold 61.2% of a typical loan tranche. We also show that syndicates in countries with weak creditor rights and poor legal enforcement are larger and more diffuse. Based on this finding, we conclude that lenders structure loan syndicates to facilitate monitoring and low-cost re-contracting in countries where creditors have strong and enforceable legal rights. In contrast, lenders attempt to deter strategic defaults by creating larger and more diffuse syndicates when they cannot resort to legal enforcement mechanisms to protect their claims.
473 citations
TL;DR: In this article, the authors find that a top credit rating agency frequently made positive adjustments beyond its main model that amounted to increasingly larger AAA tranche sizes, which resulted in more severe subsequent downgrading.
Abstract: Analyzing 916 collateralized debt obligations (CDOs), we find that a top credit rating agency frequently made positive adjustments beyond its main model that amounted to increasingly larger AAA tranche sizes. These adjustments are difficult to explain by likely determinants, but exhibit a clear pattern: CDOs with smaller model-implied AAA sizes receive larger adjustments. CDOs with larger adjustments experience more severe subsequent downgrading. Additionally, prior to April 2007, 91.2% of AAA-rated CDOs only comply with the credit rating agency’s own AA default rate standard. Accounting for adjustments and the criterion deviation indicates that on average AAA tranches were structured to BBB support levels.
372 citations
Posted Content•
TL;DR: This article found that a top credit rating agency frequently made positive adjustments beyond its main model that amounted to 12.1% larger AAA tranche sizes, and that CDOs with smaller model-implied AAA sizes receive larger adjustments.
Abstract: Analyzing 916 CDOs, we find that a top credit rating agency frequently made positive adjustments beyond its main model that amounted to 12.1% larger AAA tranche sizes. These adjustments are difficult to explain by likely determinants, but exhibit a clear pattern: CDOs with smaller model-implied AAA sizes receive larger adjustments. CDOs with larger adjustments experience more severe subsequent downgrading. Additionally, prior to April 2007, 91.2% of AAA rated CDOs only comply with the credit rating agency’s own AA default rate standard. Accounting for adjustments and the criterion deviation indicates that AAA tranches were on average structured to BBB support levels.
343 citations
TL;DR: In this paper, the authors examined the relation between legal risk and debt ownership structure in project finance loan tranches and found that the tranches exhibit high absolute levels of debt ownership concentration: the largest single bank holds 20.3% while the top five banks collectively hold 61.2% of a typical tranche.
Abstract: Using a sample of 495 project finance loan tranches (worth $151 billion) to borrowers in 61 different countries, we examine the relation between legal risk and debt ownership structure. The tranches exhibit high absolute levels of debt ownership concentration: the largest single bank holds 20.3% while the top five banks collectively hold 61.2% of a typical tranche. In countries with strong creditor rights and reliable legal enforcement, lenders create smaller and more concentrated syndicates to facilitate monitoring and low cost contracting. When lenders cannot rely on legal enforcement mechanisms to protect their claims, they create larger and more diffuse syndicates as a way to deter strategic default.
310 citations
TL;DR: In this article, a simple model of the sovereign-bank diabolic loop is proposed, and four results are established: the diabolic loops can be avoided by restricting banks domestic sovereign exposures relative to their equity.
Abstract: We propose a simple model of the sovereign-bank diabolic loop, and establish four results. First, the diabolic loop can be avoided by restricting banks domestic sovereign exposures relative to their equity. Second, equity requirements can be lowered if banks only hold senior domestic sovereign debt. Third, such requirements shrink even further if banks only hold the senior tranche of an internationally diversified sovereign portfolio known as ESBies in the euro-area context. Finally, ESBies generate more safe assets than domestic debt tranching alone; and, insofar as the diabolic loop is defused, the junior tranche generated by the securitization is itself risk-free.
241 citations
Related Topics (5)
Performance Metrics
| Year | Papers |
|---|---|
| 2025 | 4 |
| 2024 | 5 |
| 2023 | 14 |
| 2022 | 28 |
| 2021 | 5 |
| 2020 | 18 |