Arranger Certification in Project Finance

Do borrowers benefit from using prestigious banks as arrangers for their loans? Are the services of such arrangers especially valuable during times of crises? Using a sample of 4,122 project finance loans worth $769 billion arranged from 1991 to 2005, Stefanie Kleimeier and her co-authors Stefano Gatti, Bill Megginson and Alessandro Stefanoni demonstrate that certification by prestigious lead arranging banks creates economic value by reducing overall loan spreads compared to loans arranged by less prestigious arrangers. Banks participating in these loan syndicates, rather than the project sponsors, pay for this certification. They do so by allowing top tier arrangers to keep larger fractions of the upfront arranging fees. Results are robust to the correction for the endogenous choice of loans by prestigious arrangers and indicate that certification is even more valuable during periods of extreme financial stress.