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Capital Commitments and Private Debt Lending in Crises
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I study how capital commitments affect the resilience of private debt funds' lending during crises by comparing private and public Business Development Companies (BDCs) during the COVID-19 shock. Using borrower-level regressions with firmquarter fixed effects, I find that, in comparison to public BDCs, private BDCs sustained lending, providing about 7%, or $1.2 million, more credit to the same firm. My findings show that pre-committed capital, rather than liquidity buffers, shields private BDCs from financing frictions and enables them to maintain their credit supply when market-based funding is impaired. During crises, private BDCs continue drawing down their commitments to finance investments.
Title: Capital Commitments and Private Debt Lending in Crises
Description:
I study how capital commitments affect the resilience of private debt funds' lending during crises by comparing private and public Business Development Companies (BDCs) during the COVID-19 shock.
Using borrower-level regressions with firmquarter fixed effects, I find that, in comparison to public BDCs, private BDCs sustained lending, providing about 7%, or $1.
2 million, more credit to the same firm.
My findings show that pre-committed capital, rather than liquidity buffers, shields private BDCs from financing frictions and enables them to maintain their credit supply when market-based funding is impaired.
During crises, private BDCs continue drawing down their commitments to finance investments.
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