| We analyze the relatively new phenomenon of ratings on syndicated loans by Moody's in several ways. We first hypothesize that credit ratings on new syndicated loans do not convey new information to the capital market. Our event study results show that while initial ratings and upgrades do not provide information to the market, downgrades do provide new information. The market anticipates loan rating revisions, however. We also examine whether a relatively small number of financial ratios can explain the cross-sectional variation in syndicated loan ratings, as they have been shown to do in the case of bond ratings. We find that loan ratings are somewhat predictable. Finally, we estimate a credit spread model incorporating bank loan credit ratings and other factors reflecting information asymmetry and agency problems. We find that ratings affect loan rates. |
