Dual holdings and shareholder-creditor agency conflicts: Evidence from the syndicated loan market

We examine implications from the expansion of private equity (PE) firms into the collateralized loan obligation (CLO) (i.e., leveraged lending) business. Due to similarities in the investment universes of CLO managers and PE firms, asset managers running both of them frequently hold debt and equity claims of the same company. Our results indicate lower credit costs for these companies through the mitigation of shareholder-creditor agency conflicts. The lower funding costs imply increased equity returns for the sponsoring PE firms. In addition, our findings suggest that PE-affiliated CLO managers benefit from informed trading in the secondary leveraged loan market.