THE INFORMATIONAL ROLE OF THE LOAN ONLY CREDIT DEFAULT INDEX (LCDX) ON THE PRICING OF SYNDICATED LOANS

  • Zagdbazar Davaadorj Western Michigan University
  • Jorge Brusa Texas A&M International University

Abstract

This paper explores the informational role of the Loan Only Credit Default Index (LCDX) on the pricing of syndicated loans. Despite an extensive body of research on credit indices and loan pricing, limited studies have comprehensively assessed the complex relationship between the LCDX and individual loan spreads. Contrary to indices like the CDX, which are largely linked to corporate bonds, the LCDX directly pertains to the syndicated secured loan market, offering valuable insights about the overall credit default market and the cost of credit risk insurance. Preliminary results reveal a pronounced positive correlation between the LCDX spread and the syndicated loan spread, particularly noticeable amongst borrowers with lower credit quality. The paper highlights the LCDX's pivotal role in conveying secondary credit market information, with critical implications for credit risk management and financial regulations.

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Author Biographies

Zagdbazar Davaadorj, Western Michigan University

Assistant Professor of Finance,

Department of Finance and Commercial Law,

Haworth College of Business,

Western Michigan University

Email: zagdbazar.davaadorj@wmich.edu

Jorge Brusa, Texas A&M International University

Professor of Finance,

Division of International Banking and Finance Studies

A.R. Sanchez, Jr. School of Business

Texas A&M International University

Email: jbsa@tamiu.edu

Published
2024-03-27
How to Cite
Davaadorj, Z., & Brusa, J. (2024). THE INFORMATIONAL ROLE OF THE LOAN ONLY CREDIT DEFAULT INDEX (LCDX) ON THE PRICING OF SYNDICATED LOANS . Applied Finance Letters, 13, 63-76. https://doi.org/10.24135/afl.v13i.738
Section
Articles submitted to regular issue