Title page

Contents

Abstract 2

1. Introduction 3

2. Data construction 7

3. Empirical findings 9

3.1. Unconditional facts on loan modifications 9

3.2. Borrower financial distress and modifications 14

4. Mechanisms 16

4.1. Are modifications simply explained by covenants? 16

4.2. Is the distinction between SD and SL loans simply proxying for size? 20

4.3. Do maturity extensions simply reflect evergreening? 21

5. Conclusion 22

References 23

Internet Appendix for "Debt Flexibility" 33

A.1. Details on data construction 34

A.2. The measurement of re-originations and renewals 39

A.3. Loan modifications during COVID 41

Table 1. Summary statistics at origination (Panel A), modification frequencies (Panel B), and modification types (Panel C). The sample contains loans... 28

Table 2. Syndication status and loan modifications. The sample contains loans originated after 2012:Q3 and active up to and including 2022:Q1. There... 29

Table 3. Financial distress and loan modifications. The sample contains loans originated after 2012:Q3 and active up to and including 2022:Q1. There... 30

Figure 1. The timing of loan modifications. The sample contains loans originated after 2012:Q3 and active up to and including 2022:Q1. Panel A shows... 31

Figure 2. The role of loan size. The sample contains loans originated after 2012:Q3 and active up to and including 2022:Q1. There are 29 banks in the sample.... 32

Table A-1. Sample selection steps. The third column reports the number of observations before the drop step described in each line. The fourth, fifth... 43

Table A-2. Additional summary statistics at the loan-by-quarter level. The sample contains loans originated after 2012:Q3 and active up to and including... 44

Table A-3. Modification and renegotiation rates for all borrowers and those that enter bankruptcy and match to a loan in our sample of the FR Y-14Q... 45

Table A-4. Summary statistics for the FR Y-14Q merged with the full SNC sample (top panel) and the SNC covenant review sample (bottom panel).... 46

Table A-5. Modifications and renegotiations in the cross-section of syndications observed in both the SNC and the FR Y14-Q. The FR Y-14Q sample contains... 47

Table A-6. Modifications and renegotiations in the current and following two quarters in the panel of syndications observed in both the SNC and the FR Y14-Q.... 48

Table A-7. Average change in interest rate (or interest rate spread for fixed rate loans), in basis points, in the current and following two quarters in the panel... 49

Table A-8. Syndication status, maturity and spreads at origination, and modifications at re-origination. The sample contains loans originated after 2012:Q3... 50

Table A-9. Propensity to re-originate loans in distress. The sample contains loans originated after 2012:Q3 and active up to and including 2022:Q1, but... 51

Table A-10. Propensity to re-originate loans. The sample contains loans originated after 2012:Q3 and active up to and including 2022:Q1, but starts in... 52

Table A-11. Syndication status, maturity and spreads at origination, and modifications at renewal. The sample contains loans originated after 2012:Q3 and... 53

Table A-12. Propensity to renew loans. The sample contains loans originated after 2012:Q3 and active up to and including 2022:Q1, but starts in 2014:Q4... 54

Table A-13. Banking relationships and loan modifications. The sample contains loans originated after 2012:Q3 and active up to and including 2022:Q1.... 55

Table A-14. Financial distress and loan modifications. The sample contains loans originated after 2012:Q3 and active up to and including 2022:Q1. There... 56

Table A-15. Debt flexibility beyond financial distress in the loan by quarter sample. The sample contains loans originated after 2012:Q3 and active up to and... 57

Figure A-1. Time series of modification rates. The top panel reports quarterly modification rates from the sample of loan-quarter observations. The sample... 58

Figure A-2. The distribution of maturity at origination. The sample contains loans originated after 2012:Q3 and active up to and including 2022:Q1.... 59

Figure A-3. The timing of loan modifications as a fraction of initial maturity. The sample contains loans originated after 2012:Q3 and active up to and... 60

Figure A-4. The timing of loan renegotiations. The sample contains loans originated after 2012:Q3 and active up to and including 2022:Q1. Each subpanel... 61

Figure A-5. Time series of re-origination and renewal rates (top panel) and modification rates (bottom) panel during the 2019:Q1-2022:Q1 period.... 62

Figure A-6. Time effects in Equation (A1): Yi,t = γm,j,b + δt + εi,m,j,b,t for loan i, in quarter t, with maturity at origination m, lender j, borrower b,... 63

Figure A-7. Quarter fixed effects in Equation (A2). This specification compares re-origination rates (top panel) and the rates of changes in interest rates... 64